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IPO fever is back in full force with the public announcement of Twitter's IPO plans to raise up to $1 billion.
Twitter's site was flooded shortly after 5 p.m. Thursday with tweets about the company's IPO filing.
The filing had been expected for some time and provided the first glimpse into the micro-messaging service's highly guarded financials. The numbers are mixed at best and leave savvy investors wondering if Twitter stock is a buy.
The Twitter IPO Details
Indeed one of the most highly anticipated stock market debuts of the year, we still don't know the company's valuation because the number of shares and price range have not yet have been revealed. We will keep you updated on the Twitter IPO price and date when they're released.
What we do know is that in August, Twitter pegged fair value of its common stock at $20.62 a share. And with 620 million shares outstanding, that suggests a valuation of around $12.8 billion.
At $12.8 billion, Twitter valuation would be 28.6 times the last 12 months' revenue. That looks pricy when compared to Facebook stock, which sold shares for roughly 26 times revenue, and LinkedIn (Nasdaq: LNKD), which debuted with a price-to-sales ratio of about 14.5.
But Twitter is at a tipping point where fixed expenses are finally covered by revenue. And prospective users will propel profit margins going forward. Investors in a high price/earnings (P/E) initial public offering find that kind of margin growth reassuring.
"Whether it's worth $12 billion or not is really going to come down to how they can embrace this real-time news and information vision, how they can extend it to other revenue lines and how they can grow around the world," Brian Vlau, a tech analyst at Gartner Inc., told Bloomberg.
And the losses are a non-issue, according to Brian Wieser, an analyst at Pivotal Research Group. He told Reuters, "It would have been a surprise if they had a profit."
Goldman Sachs Groups Inc. (NYSE: GS) grabbed the top underwriting spot, with JPMorgan Chase & Co. (NYSE: JPM), Deutsche Bank AG (NYSE: DB), Bank of America Corp. (NYSE: BAC), Allen & Company LLC, and CODE Advisors assisting.
The $1 billion offering would be the largest for an Internet company since Facebook became a public company in May 2012.
Overshadowed by a number of technical and trading glitches, Facebook's IPO was a flop. Shares fell some 50% in their first three months of trading. Shares have since recouped those losses and surpassed $50 a share for the first time a few weeks ago.
The Twitter stock ticker symbol is TWTR, although it's not known whether the micro-blogging behemoth will list on the New York Stock Exchange or the Nasdaq.
Here's a breakdown of the good and bad numbers we learned from the Twitter IPO details:
Twitter Stock IPO: The Good Numbers
- The social network's revenue rose 107% to $254 million in the first six months of the year. Sales nearly tripled in 2012 and they almost quadrupled in 2011. Analysts predict the company can grow 70% in 2014.
- Twitter's operating cash flow turned positive in the first half of 2013. On that basis, the company turned a $9.66 million profit versus a $23 million loss in the same period a year ago.
- Monthly active user count last quarter grew to 218 million.
- The number of monthly active users jumped 44% from a year ago.
- Mobile ads accounted for 65% of revenue last quarter.
- Three-quarters of Twitter's 218 million monthly active users access the site via the explosive mobile arena.
Twitter Stock IPO: The Bad Numbers
- Founded in 2006, Twitter has not recorded a profit in at least the last three years. Losses in 2010 and 2011 came in at $67 million and $164 million respectively. In 2012, the company lost $79.4 million on roughly $317 million in sales.
- Net loss grew by 40% in the first six months of 2013 to $69 million, putting the company on track for even steeper annual losses this year as company expenses balloon.
- Advertising prices, which account for the bulk of the San Francisco-based company's revenues, are falling. Ads on mobile devices have long been less expensive than those on PCs. Twitter warned it is heavily reliant on ad revenue. More than 87% of its revenue in the first half of 2013 came from advertising.
- Concerns are growing over "robot" accounts that spew tweets. Marketers want more proof their paid ads are actually reaching real people. Twitter maintains that fake and spam accounts, which the company has long worked to keep off the site, make up less than 5% of users.
- The uncertainty over the government shutdown and looming debt ceiling could impact the whole process.
"People are getting cautious of the market right now," Moshe Cohen told MartketWatch. "People are worried about the markets fluctuating and that impact market confidence."
Twitter Stock: The Key Is in Advertising
It's worth noting that Twitter already has better mobile revenue numbers than Facebook did when it hit the market in May 2012. The lackluster mobile revenue hurt FB stock for a good 17 months.
Ad revenue per timeline view is a key metric Twitter uses to evaluate its business. TechCrunch explains, "The company treats timeline views ('the total number of timelines requested when registered users visit Twitter, refresh a timeline or view search results while logged in on our website, mobile website or desktop or mobile applications') as a measure of user engagement, and it uses ad revenue per timeline view to track its ability to make money from that engagement."
TechCrunch notes revenue per timeline view was $0.80 for the three months ending June 30, up 26% from a year earlier. The number is notably higher in the U.S. ($2.17) compared to the rest of its global market ($0.30). However, the international number soared 111% year over year.
This is good – but the key will be if Twitter can attract advertisers that are flocking to Facebook in record numbers right now. Facebook has found a way to make advertising work, and Twitter needs more success in that arena to prove it's worthy of investment.
Speaking of Facebook, here are five ways the Twitter IPO won't be like its social media competitor…
Twitter Files IPO with Implied $12.8 Billion Value
Twitter IPO: Is the Market Ready?
- CNN Money:
Twitter Not Yet Profitable
- The Wall Street Journal:
One Big Doubt Hanging Over Twitter's IPO: Fake Accounts