Wall Street hasn't always been friendly to the darlings of Silicon Valley, but Twitter is hoping to buck the trend as it prepares for next month's highly anticipated IPO on Wall Street.
The list of hotshot social media companies that have struggled as public companies could be intimidating for Twitter as it looks to avoid making the same mistakes as competitors Facebook Inc., Groupon Inc. and Zynga Inc. Investors have learned the hard way that online buzz doesn't reliably translate into investor profits.
Twitter's debut could also have an impact of the expected class of 2014 Internet IPOs, which could include such rising stars in the industry as Dropbox Inc., Airbnb Inc. and Box.
Despite Silicon Valley's rocky history on Wall Street, however, many analysts believe Twitter has a chance to break through this perceived barrier, if it can simply learn from Facebook's mistakes, including an opening trading price that quickly overshot the market's estimation.
"Facebook spooked investors," said Brian Blau, research director at Gartner, a technology research company based in Connecticut. "If Twitter can avoid the same mistakes, if they can seem like a more stable company, I think investors will react positively."
Facebook famously changed course a number of times during the company's "road show" where it pitched itself to investors. All the last-minute changes didn't go over well with serious investors, Mr. Blau explained.
Furthermore, Facebook CEO Mark Zuckerberg didn't seem to take the initial public offering seriously, often skipping meetings with potential investors. And when he did show up, he was usually wearing jeans and a hoodie.
Twitter CEO Dick Costolo "needs to come off as being professional and they can't replace him with a video like Facebook did," Mr. Blau said.
If Twitter can avoid such trivial mistakes, Mr. Blau believes the social network has a chance for a successful IPO.
So does Jeff Kagan, an Atlanta-based technology analyst.
"While the Facebook threat is still there, I think Twitter will learn from Facebook's mistakes and this IPO will be much stronger," Mr. Kagan said.
Twitter inadvertently let it be known last week that it intends to go public Nov. 15 in a filing with the Securities and Exchange Commission, giving investors just more than a month to comb through the company's financial statements. The New York Stock Exchange and Nasdaq are fighting for the right to the IPO, which could value the San Francisco-based social media firm at between $12 billion to $15 billion.
The popular microblogging service has generated a lot of buzz around the IPO, but little was known about the company's plans or financial records until recently, when the company filed a report with the SEC.
The financial statements have revealed several interesting facts about the company: Twitter has 218.3 million monthly active users — up significantly from 151.4 million in 2012 — who generate about a half-billion tweets each day. The company is hoping to raise $1 billion from its IPO, though it hasn't yet decided on a price.
But the company has never turned a profit. Twitter lost $69.3 million in the first half of 2013. This may be considered typical for startups where it can take years to turn a profit, but what's alarming for investors is the fact that the rate of its losses has increased by 41 percent since the same period in 2012.
But Mr. Blau said this should not be a serious concern for investors, because Twitter is still a young company and it will take time to make it profitable.
"I don't know that it's a big issue today that they haven't been profitable," Mr. Blau explained. "The hope is that will turn around, that they won't have to spend that much going forward and they can focus on making a profit."
On the other hand, Twitter's revenue continues to grow, but at an increasingly slower rate. In the first half of 2013, Twitter took in $254 million in revenue, which projects to be $508 million for the whole year, up from $317 million in 2012 and $106 million in 2011. However, the rate of growth is shrinking. Twitter's revenue growth has slowed from 198 percent between 2011 and 2012 to just 107 percent since the beginning of this year.
But Twitter's struggles to turn a profit on its international operations have raised fresh questions. A large chunk of the company's users are based internationally, but Twitter makes far less money from advertisements that target these users than they do in the U.S.
According to the PrivCo report, Twitter makes $2.70 for every 1,000 timeline views in the U.S., compared to just 30 cents outside of the U.S.
"To the extent that Twitter's growth prospects lie overseas, Twitter hasn't figured out how to make money from its offshore users," PrivCo wrote.
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