Twitter offered the public a first detailed look at its financials in a filing Thursday formally notifying the Securities and Exchange Commission that it plans to go public. The company is seeking to raise $1 billion, and an offering is expected within weeks.
With this long-awaited move, Twitter will soon join Facebook and LinkedIn as the major social-networking companies that have gone public. Then it will be up to prospective investors to decide between risk and reward.
In the filing, known as the S-1, the company said that it seeks to raise $1 billion in new cash. Twitter brought in $254 million in revenue during the first half of 2013, $317 million in 2012, and $106 million the year before. It has never made a profit. The company said there will be 472.6 million shares of common stock outstanding after the IPO.
In the filing, Twitter said that 75 percent of its monthly active users accessed the site on mobile devices, and that 65 percent of its ad revenue comes from mobile devices. By contrast, when Facebook went public in May, 2012, it had just started monetizing mobile.
For a company whose major product is the tweet, it has already achieved a lot. Twitter now has 218.3 million monthly active users, up 44 percent from 151.4 million a year earlier. It also has more than 100 million daily active users, and its users generate about half a billion tweets per day. All told, Twitter users have posted 300 billion tweets since the service launched. Until today, the most recent numbers shared publicly gave Twitter some 200 million monthly active users.
The billion dollars in new cash Twitter will have after the IPO will help the company fund its myriad ambitions -- including acquisitions, refinements to its advertising platform, or other changes designed to boost the number of people who use its service.
Twitter first disclosed in mid-September that it had filed what it called "confidential" IPO documents with the SEC, a step that, under terms of the Jumpstart Our Business Startups (JOBS) Act, allowed it to conduct a secret back-and-forth process with the SEC in order to get feedback before making its formal registration.
That move allowed it to work out the kinks in its formal filing outside public scrutiny, as well as to keep its competitors from learning the details of its business plans for a few extra weeks. According to AllThingsD, Twitter filed the confidential documents in July.
Going public is a big deal in the life of any company -- and given Twitter's high profile, the offering's success or failure may well influence the thinking at other social-networking startups weighing whether to test the public markets.
Twitter's value as a business goes beyond having more than 200 million active monthly users.
Twitter's "main asset is the engagement they get from their users," said Brian Blau, an analyst with Gartner. "This is it. This is the core and central focus...It's the users interacting with the service, and clicking on links, and potentially buying" things.
Yet, there is some concern that Twitter may not be growing fast enough to satisfy Wall Street's desires. According to AllThingsD, Twitter CEO Dick Costolo told insiders that the company would grow to 400 million monthly active users by the end of 2013, a goal it fell far short of. On the one hand, it has deliberately shed large numbers of spam accounts to please advertisers. But on the other, it also has a problem with churn, as new users struggle to understand the service, which despite being built around what were once simple 140-character maximum posts, has become much more complicated, loaded down with an odd language utilizing symbols like @, #, and RT.
'Just setting up my twttr'
Twitter began in 2006 as a side project of Odeo, a San Francisco podcasting startup run by Blogger founder Evan Williams and Biz Stone. On March 21, 2006, Jack Dorsey, who became Twitter's first CEO -- and who is now the co-founder and CEO of mobile payments powerhouse Square, as well as Twitter's executive chairman -- launched the service by sending out a post that read, simply, "Just setting up my twttr."
The idea of a microblogging service tied, initially at least, to mobile carriers' SMS systems, caught on, most notably at the 2007 South by Southwest conference in Austin, Texas, where people were taken in by the simplicity of sending status updates in small, 140-character bites. Twitter spun off from Odeo in 2007, and quickly became a favorite among the digerati, even though the service frequently, and famously, crashed.
In late 2008, with the company growing and gaining popularity among celebrities and athletes, but still unable to articulate a coherent business model, Dorsey stepped down as CEO, replaced by co-founder Williams.
Despite having raised $1.16 billion in venture capital, much of it from the biggest names in the VC community, perhaps the most common question about Twitter in its early years was "how will it make money?" Business, like baseball, is often rife with seemingly endless barstool debates. And when it comes to Twitter, this is a company that the naysayers have loved to doubt would ever find a way to make money from 140-character text tweets. When it finally announced in April 2010 that it was launching an advertising program built around "promoted tweets," essentially paid tweets tied to specific hashtags, or searchable keywords, Twitter began to put to rest speculation that it would try to build its business around premium services. Twitter now boasts a roster of A-list partners including the NFL, NBA, ESPN, CNET parent CBS, and many others.
Yet Twitter still remained chaotic, unable to stabilize its leadership, or its bottom line. In October 2010, Williams stepped down as CEO, replaced by then-COO Costolo, also one of the company's first group of investors.
Costolo has seemed largely able to right the ship. Twitter's advertising program, which has thousands of clients, has been bolstered by the launch of Amplify, an initiative built around helping TV networks and organizations like the NFL, NBA, and the NCAA embed ad-supported videos in their tweets.
At the same time, Twitter has acquired a variety of companies, and their technologies, intent on filling the gaps in its infrastructure and its public offerings. Among those are Vine, which gave it a standalone video service; the social TV analytics firm Bluefin Labs; third-party Twitter client developer TweetDeck; and Twitter search tool Summize.
All of that, of course, means that the idea of a tweet containing nothing more than 140 characters is rather quaint. Today, a tweet can contain dozens of pieces of information, from text to photos to video to URLs, and much, much more.
What Twitter's IPO filing reveals
Without a doubt, Twitter is now one of the most important players in the Internet industry. It is often considered the best real-time search engine in the world, and with its hundreds of millions of users, Twitter offers advertisers and users alike an impressive platform on which to continue to build its service and its business. But the company also must contend with energetic competition from the likes of Google and Facebook, Internet powerhouses far bigger than Twitter, which have much deeper pockets.
Facebook is usually seen as Twitter's closest analog. But in its most recent quarterly earnings report, Facebook announced revenue of $1.8 billion -- with mobile advertising generating $656 million, Facebook also has 1.15 billion monthly active users. Those numbers all dwarf those of Twitter. So far.
To be sure, Twitter has relatively few marketing opportunities, but it works hard at developing them, according to Forrester analyst Nate Elliott, who describes the company as "the most innovative social media site in terms of experimenting" with new ways of connecting marketers to an audience.
One of the ways that Twitter has become an invaluable tool for users is as a place to find out what's happening in real time. Many have said Twitter is the world's best real-time search engine -- far better than Google, for example, at surfacing information about what's happening right now. And some advertisers have found that because it's possible to move quickly and place ads against topics that are trending in real time, they can leverage Twitter as a way to advertise based on what people are talking about in the moment. Just look at Oreo's ad during this year's Super Bowl.
"Any time [Twitter introduces] something new, it has a better chance of hitting than anything new introduced on Facebook, because [Twitter spends] more time testing and improving those marketing opportunities before they offer them," according to Elliott.