Sept. 13: Twitter, which began as a side project in a small but failing start-up seven years ago and grew into one of the world’s largest platforms for public conversation, is about to take its biggest step yet into maturity: selling stock to the public.
The company announced yesterday — in a tweet, one of the 140-character messages that are the backbone of the service — that it had filed paperwork with regulators to eventually sell shares in an initial public offering. However, it had filed the first documents months earlier under a special provision of securities law that allows a company with less than $1 billion in annual revenue to keep its financial data secret until it begins actively marketing its stock to investors.
Twitter’s caution follows the disastrous IPO of its arch-rival, Facebook. In May 2012, Facebook sold $16 billion in stock to investors, only to see its share price sliced in half in the ensuing months as shareholders worried that the company could not make money from its billion users.
But investors have recently become enamoured of all things social and mobile, and have become particularly enchanted by the fast growth of mobile advertising revenue at social networking companies.
Facebook’s shares hit a record high this week and ended yesterday at $44.75, well above the $38 IPO price. LinkedIn, the business-oriented social network, is trading at nosebleed levels, even after selling another $1 billion in stock to investors in a secondary offering.
This is an opportune time for Twitter to join their ranks. Its service is considered well suited for mobile phones, with its core tweets resembling simple text messages, and it has been rapidly growing both in global users and in its advertising offerings. The microblogging service already has well above 200 million active users and is fast approaching 300 million, according to memos shared with staff members.
By its own estimates, Twitter was profitable in December of last year and generated more than $100 million in revenue in the final quarter of 2012, according to numbers in an email shared among staff.
These numbers could not be independently verified. But it has not been consistently profitable in 2013 because it has reinvested money in acquisitions, said people with knowledge of Twitter’s financial data who declined to be named.
The company makes most of its money from a type of ad called a sponsored tweet. The messages look nearly the same as any other message on the service, and are inserted into the stream of other tweets that users get from the accounts they follow.
Advertisers typically bid for their messages to appear near certain demographic groups or around certain keywords. Twitter is expected to post around $600 million in revenue this year and close to $1 billion next year, according to internal projections and estimates by the research firm eMarketer. While it is unclear how much money Twitter will seek in its offering, the amount is certain to be in the billions of dollars.