Twitter takes flight and joins the sharemarket
With a tweet, the social media sensation announced plans to float stock to fund its global expansion, write Vindu Goel and Nick Bilton.
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 San Francisco-based company announced on Thursday - in 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 $US1 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 float of its archrival, Facebook. In May 2012, Facebook sold $US16 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 1 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.
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 more than 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 and generated more than $US100 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 into acquisitions, said sources familiar with Twitter's finances.
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 about $US600 million in revenue this year and close to $US1 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 billions of dollars.
The company needs to build a war chest to continue funding its global expansion, including acquisitions like its $US300 million purchase on Monday of MoPub, an advertising technology company. And it needs cash to take on the much larger and better-funded Facebook as they both vie to create new products that will help advertisers reach consumers on the go. Twitter's service is simpler than the more popular Facebook but also more confusing for novices. Messages flow in continuously, most recent on top, without regard to their importance.
Yet the service, which allows users to post anonymously, has become an important source of user-contributed news and a tool for organising mass movements such as the Arab Spring revolutions.
The float provides a way for employees and the company's venture capital shareholders to easily sell some of their shares.
Since Twitter received its first venture investment in June 2007, the company has taken more than $US1 billion in venture funding from companies including Union Square Ventures, Bezos Expeditions, Spark Capital and Institutional Venture Partners.
Longtime investors welcomed the news.
"It's a great time for the company to be going public," said George Zachary, a general partner at Charles River Ventures, which invested $US250,000 for 1 per cent of Twitter in its first funding round. "Their IPO is well timed. The recent rise in Facebook stock price is probably going to bode well."