Roughly three weeks ago, we took a close look at what a Twitter IPO might look like and what the pro and con perspectives for the company are likely to be. Yesterday afternoon the company finally released its S1 - think of it as its formal IPO statement, wherein all of the necessary financial details for its IPO finally become publically available. We've gone through the document and as it turns out there are no surprises in it.
We aren't going to rehash all the numbers or provide a list of the ultimate money winners here but we have provided them elsewhere. If you are someone interested in possibly investing in Twitter, you need to read the S1 and read the Wall Street Journal's articles - they've already provided the details. Rather, we're more interested in potential outcomes for investors and what they are likely to get in return for what is shaping up to be a roughly $1 billion IPO.
All of the usual suspects at the top of the Twitter food chain clearly stand to make tons of dollars - nothing unusual there. The company looks to be on track for delivering just under $600 million in revenue in 2013 (based on actual revenue of $254 million for the first six months of 2013) - which in truth does represent fairly heady growth. Twitter now has almost 2,000 employees, many of whom are on the technical end of things, though quite honestly the number seems rather substantial to us. And yes, as we already know, the company is still losing money in spite of all that revenue growth, with a net loss of $69 million reported.
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Quite honestly, we need to keep that loss in perspective - relative to total revenue the loss is not even remotely substantial. In fact it strongly points to Twitter continuing to invest in its growth, and it strongly reminds us of how Jeff Bezos has always run Amazon. This is extremely important for Twitter's future - it is not about profit in 2014, it is really about looking ahead to building out a powerful and successful advertising engine that is able to both tap into its existing pool of roughly 218 million active and highly engaged Twitterati - they send out about half a billion messages a day - and about building a foundation to attract many more of them on a global scale.
For Twitter to do this requires the senior management team to focus on its long term future, not on short term issues for satisfying early stage IPO investors. Bezos did this brilliantly, and in fact he still does this to this day. We hope Twitter's management team keeps this firmly in mind as it begins to plot out how it will make use of the $ 1 billion or so the IPO will bring in.
As a quick comparison, when Facebook launched its IPO it had $3.7 billion in revenue and a profit on the books of just about $1 billion for 2011. It also had 845 million monthly active users that have since grown to 1.1 billion users. But Facebook is a different company and the two IPOs are hardly comparable. Much has been made of Facebook's "BOTCHED" IPO by the way, however we have an entirely different view of that - there was nothing in fact botched about it. Let's hope Twitter's IPO runs clean of such nonsense.
Mobile Strategy Counts
It is worth noting that mobility plays a key role in Twitter's future. Twitter notes that 75 percent of its monthly active users access the site on mobile devices and that 65 percent of its ad revenue comes from mobile devices. This shouldn't be surprising. Given the nature of how Twitter primarily works, it is a platform that lends itself entirely to highly effective mobile usage.
What we will want to hear from Twitter's management team is how Twitter intends to grow that mobile usage. Why? One key concern about Twitter's future is that its growth, in terms of actual fully engaged users, may in fact not be at all open-ended. It may prove to be finite in nature. In the United States, which currently generates about 75 percent of all revenue, the subscriber base appears to be reaching a potential saturation point. In order to create substantial new subscriber growth Twitter will need to look outside of our borders to the global markets.
As it turns out, those global markets are going to all be markets driven by mobile usage. Most global markets continue to see enormous Internet and Web usage growth, but that growth is almost exclusively driven though mobile access. Twitter has to ensure that its mobile capabilities are extremely robust - not everyone is going to be sitting in front of a 25-inch HD monitor viewing Tweetdeck screens in all their overblown glory! Most people will look to associate Twitter with its inherently lightweight approach (you know, the tweet) - hence a mobile approach that is also lightweight, fast, clean and works anytime, anywhere.
Finally, the company needs to figure out how it will make money from these engaged and mobile users. Can ads truly support a Twitter business that will eventually need to show growth to the tune of billions of dollars in revenue? That is the real question investors must get their heads around.
Playing the IPO Game
Anyone looking to invest in the Twitter IPO necessarily needs to keep in mind that Twitter has a collection of major investors who own well over a billion dollars in investments in Twitter. The shares that become available to the public will all come from this pool. All of these investors have one goal in mind - sell high, buy low!
Much was made of the Facebook IPO in that, alas, Facebook itself got all the money, and the idiocy of many investors and financial analysts then caused an irrational dumping of their stock because they didn't get what we refer to as the "IPO game pop." Those first investors typically trade on the stock shooting up by then dumping high and waiting for the prices to fall once the small investors get in and buy at the wrong price points.
If you are a small investor, the only strategy is to hold on to those shares you buy early on - never give them back to the big boys at a lower price (a price dip will inevitable happen) - that is what they want. Invest in Twitter only for the long run. If you happen to gain a strong sense from Twitter's management that they are likely to follow the Bezos model, then by all means invest! And hang on. Look as well to LinkedIn rather than Facebook - that is what we hope for with Twitter.
TechZone360 Senior Editor
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