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Twitter IPO filing: Will Growth Translate To Profits?
Twitter IPO filing: Will Growth Translate To Profits?
Twitter, the San Francisco-based social networking messaging service, will go from a private company to a publicly traded one on October 24. A relatively new law allows companies with making less than one billion in annual revenue to selectively decide when to release their IPO filing to investors.
Given that Twitter’s annual revenue was $317 million for 2012, Twitter had the prerogative as to when to release their filing. This past Friday, with little more than a fortnight to go before the IPO, Twitter put out an 800 page filing.
However, as popular as Twitter is, its recent growth rate has cooled. From 2011 to 2012, the company’s revenue jumped almost 200 per cent. During the first six months of this year, revenue increased by only 100 per cent, compared with the same period a year earlier.
“There is growth, but at a decreasing rate,” said Adriana S. de Lozada, a senior analyst at New York-based PrivCo Media LLC, a research firm focused on private companies. “What that tells you is that they were running out of time to do this IPO.”
Here are some of details to get investors savoring the company’s stock. The $317 million the company made in 2012 was a phenomenal increase over the $28 million made in just 2010 alone. However, through June of this year the company has exceeded $254 million and is on track to finish the year at $656 million or double last year’s record breaking year.
There is one caveat though: Twitter has yet to turn in a profit. Thankfully, the company has hundreds of millions in cash on hand which it raised from private investors. The company is expecting to make $1 billion from the IPO. Revenue is rapidly rising for the company but so are its losses. If ever the adage “Buyer beware” was true, now is the time.
Even as Twitter’s revenue has soared, it’s not clear if their growth will translate into profif for investors.
“Revenue to profit is a big gap to fill – looking at valuation simply from a revenue perspective is a mistake,” said Kai Li, a professor of finance at the University of British Columbia’s Sauder School of Business speaking to the Globe And Mail.
“That’s what happened to a lot of these companies; they have lots of users but if the users don’t bring in profit, it’s not a sustainable model.”
On The Web:
Twitter Dishes Tantalizing Tidbits in IPO Filing
http://www.dailyfinance.com/2013/10/04/twitter-ipo-details-growth-mobile-smartphone/