Douglas MacMillan and Brian Womack San Francisco
Twitter’s initial public offering (IPO) documents suggested a valuation of $12.8 billion (R128bn) for the microblogging service, underscoring the seven-year rise of a still unprofitable company that has helped revolutionise how people share information.
In the most anticipated technology offering since Facebook, San Francisco-based Twitter made public its S-1 prospectus on Thursday and said it was seeking to raise $1bn. Twitter pegged the fair value of its common stock at $20.62 a share.
There are 620 million shares outstanding, according to sources who asked not to be named because the number was not included in the filing.
The prospectus shows how the microblogging service, founded in 2006, has evolved from a simple site for 140-character updates to a booming online advertising business that generated revenue of $253.6 million in the first six months of this year.
“Whether it’s worth $12bn 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,” said Brian Blau, a technology analyst at Gartner.
The company will soon embark on a roadshow to promote the deal. The IPO will be a test for investors burned in recent years by the offerings of internet companies such as Facebook, Groupon and Zynga, all of which plunged after their US listings.
At $12.8bn, Twitter would be valued at 28.6 times revenue over the past 12 months. Facebook debuted with price-to-sales ratio of about 26, while LinkedIn sold shares for 14.5 times revenue.
The offering will be pivotal for chief executive Dick Costolo, who in 2010 became Twitter’s third chief in as many years. He is credited with bringing management discipline, rapid hiring and a business plan to a company that was bogged down by a lack of focus and technical outages.
The stock will list under the ticker TWTR. Twitter’s revenue in the first six months of the year more than doubled to $253.6m. The company said advertising revenue per timeline view in the second quarter rose 26 percent from the same period a year ago to 80 US cents.
It also disclosed that most of its revenue derived from mobile advertising, an area where rivals have struggled. In the three months to June, more than 65 percent of ad revenue was generated from mobile devices. Facebook said in July that mobile accounted for 41 percent of revenue in the second quarter, up from 30 percent in the prior period.
Twitter posted a net loss of $69.3m in the first six months of the year, compared with a net loss of $49.1m in the same period a year ago. The company said that as of June 30, it had incurred an accumulated deficit of $418.6m.
“They have clearly built their business from the get-go in the direction of where users are spending time, which is on their phones,” Clark Fredricksen at EMarketer said.
The company included 32 pages of risk factors, compared with 22 pages in Facebook’s IPO filing last year. Among those are Twitter’s dependence on US advertisers, even as more than three-quarter of its monthly active users are located outside the country. Twitter also cited stiff advertising competition as risks.
One challenge lies in expanding its user base. In June Twitter had 218 million monthly users, up 44 percent from a year earlier. Growth was 78 percent in the prior year.
Average revenue per user in the latest quarter was 64 US cents based on monthly active users and $139.3m in sales. – Bloomberg