Twitter wants $1 billion for 140-character idea

Twitter is hoping to turn its 140 character social information-sharing network into $1 billion by selling shares to the public. While the offering has been expected, an official filing with the Securities and Exchange Commission typically reveals some of a company’s finances and inner workings. The business press was definitely paying attention.

Here are the initial details from Wired:

Twitter has filed to go public, saying it will sell shares under the name TWTR. The IPO will initially seek to raise up to $1 billion.

In its first public disclosure of financial performance, Twitter revealed it is growing revenue fast but losing money. In a registration filing with the Securities and Exchange Commission, known as a “form S-1,” Twitter says its revenue increased to $316.9 million in 2012, from $106 million in 2011. Its net loss for 2012 was $79 million.

In the first six months of this year, according to the filing, it pulled in $253.7 million in revenue, up from $122 million in the first six months of 2012. But its losses appear to be widening. The company lost $69 million in the first six months of this year, not far from its total loss for all of last year.

The company said it had 218.3 million users per month, on average, for the three-month period ended in June. That’s up from 85 million users per month in the same period last year.

The New York Times took a much more entertaining approach to the story, invoking Lady Gaga in the lead:

If Lady Gaga were to send a message to her 40 million followers on Twitter summarizing the company’s debut on Wall Street, it might very well say: “Twitter IPO. Mobile. Born This Way.”

Twitter, which was built on messages so short they could be texted on a cellphone, revealed on Thursday just how central smartphones and tablets are to its business — underscoring the technology industry’s rapid transition to a mobile world.

But despite the evidence that it is increasing its revenue from mobile advertising, the company also disclosed that it has not yet turned a profit, and has been steadily losing money, and that its user growth has been slowing significantly since the end of last year.

The Wall Street Journal added this context and background about the highly anticipated offering, noting that Twitter has a lot more room to grow than Facebook:

In seven years, Twitter has grown from a wobbly startup to a social phenomenon where in just 140 characters its 215 million monthly active users tap out more than 500 million messages each day.

The short-message service serves as a global forum in which users break news, organize protests and gripe about what they ate for lunch. As early as 2008, Twitter turned eyewitnesses into “citizen journalists” who reported on a terrorist attack in Mumbai.

Now, once-elusive public figures including the pope, Warren Buffett and Kanye West “tweet” their thoughts and interact with other users. Twitter CEO Dick Costolo uses the service to answer users’ troubleshooting queries. Businesses, stock pickers and politicians alike analyze the sentiments expressed on Twitter as important indicators.

Despite its ubiquity, Twitter remains an immature business. The filing showed Twitter has far fewer users and generates less revenue per user than Facebook .

When Facebook filed for a public offering, the company revealed sales of $3.7 billion and a profit of $1 billion for 2011. It also had 845 million monthly active users, a huge bragging point as it pitched itself to investors.

Twitter’s growth is also a question. The majority of Twitter’s revenue, about 75%, is from the U.S., even though three-quarters of monthly users are outside the U.S. Facebook also has a wide gap between its usage and its ad revenue outside the U.S., where advertising businesses typically are less mature.

Bloomberg Businessweek had a great piece that analyzed several key points in the S-1, including the advertising information:

Tallying the Advertising Haul: Twitter says it made $253 million in the first six months of this year. Since advertisers spend more around the holidays, if we use last year as a proportional guide, it seems reasonable to project that Twitter will make somewhere around $655 million in total revenue over all of 2013. The vast majority of that revenue—87 percent—currently comes from advertising, with the rest tied to licensing deals with marketing services for Twitter data. So that would means Twitter is set to make $570 million from advertising this year—slightly less than the widely cited eMarketer estimate of $582 million.

But as it makes more money, Twitter also spends more money. The company reported a 41 percent larger loss in the first six months of 2013, compared to the year before. It is spending more than twice as much on sales and marketing than it did last year. Ditto for research and development. So far in 2013, the company says it has lost $69.3 million. —JB

Big name IPOs are always exciting, generating much buzz. While Facebook has finally climbed above its initial offering price, many retail investors may be wary of getting into another hot name. It remains to be seen how Twitter prices, but I’d wager the banks on the deal will also be more careful after several admitted mistakes on the Facebook offering. Twitter may end up looking smart by letting Facebook go first and work out all the kinks in the process, giving investors a better sense of how to evaluate the revenue potential for the company.