Born this way
San Francisco, Oct. 4: If Lady Gaga were to send a message to her 40 million followers on Twitter summarising the company’s debut on Wall Street, it might very well say: “Twitter IPO. Mobile. Born This Way.”
Twitter, which was built on messages so short they could be texted on a cellphone, revealed yesterday just how central smartphones and tablets are to its business — underscoring the technology industry’s rapid transition to a mobile world.
But despite the evidence that it is increasing its revenue from mobile advertising, the company also disclosed that it has not yet turned a profit, and has been steadily losing money, and that its user growth has been slowing significantly since the end of last year.
Last month, the company announced that it would go public but had filed confidential papers. Yesterday, it made its prospectus public, providing a first glimpse at its financial health. The Twitter initial public offering — the most hotly anticipated stock sale since Facebook went public last year — will make early employees and investors in the company very rich.
Evan Williams, one of the company’s founders, owns 12 per cent of the company, a stake valued at $1.2 billion in August, when the company last priced its employee stock options. Jack Dorsey, another co-founder, owns stock worth about $483 million.
The investment firms Benchmark Capital, Union Square Ventures and Spark Capital are also large stockholders, as is DST Global, a Russian firm that made a fortune on its early investments in Facebook.
Twitter’s impending public offering seizes on the continued growth of social networking and mobile devices, two trends the company has ridden to enormous growth. Founded seven years ago as a side project in a floundering start-up firm, it is now one of the world’s biggest public forums, ranking alongside Facebook.
The company has turned its deceptively simple product, messages no longer than 140 characters, into a global phenomenon. It has found a way to make money through advertising, notably through so-called sponsored tweets that resemble regular users’ posts.
And much of that advertising revenue is on mobile.
In its filing, Twitter said that 75 per cent of its users entered the service through mobile devices during the second quarter and that 65 per cent of its revenue came from mobile ads. That is sharply higher than the numbers of Twitter’s much bigger rival, Facebook, which had virtually no revenue from mobile when it went public last year — and struggled to prove to investors that it could be a truly mobile company.
Twitter earned far more of its advertising revenue from American users than from foreign users. Zachary Reiss-Davis, an analyst at Forrester, said the social network would eventually need to show how it could evolve its advertising efforts and make its offerings more sophisticated. “Twitter has done a good job of growing its international user base, but now it has to work with marketers to create advertising experiences that work for those international users and for marketers,” he said.
Twitter’s prospectus also offered a look at how it has grown; it reported that it had 218 million average monthly active users in the second quarter, up 44 per cent from the same period a year ago. But at the end of December, it said it had about 200 million users, suggesting that growth was slowing.
Its revenue for the first half of this year was $253.6 million, more than double the amount it brought in during the same period last year. Yet Twitter has been steadily losing money, reporting a net loss of $79 million last year and $69 million for the first six months of 2013, although some analysts said such losses were not unreasonable for a young, fast-growing company.