SAN FRANCISCO -- Are 140 characters worth $1 billion?
That's how much loot microblogging service Twitter plans to raise in its initial public offering, which could happen within the month. But some experts were taken aback by the first-ever look at the San Francisco startup's finances detailed in regulatory documents filed Thursday.
"The one surprising thing is they're still losing quite a bit of money," said Gartner analyst Brian Blau. Although its revenue, primarily driven by advertising, has soared -- from $106 million in 2011 to more than $250 million in the first half of this year -- Twitter acknowledged it's not close to profitable. The $69 million it lost between January and June almost equals its losses for all of last year.
Blau said much of that is understandable because the company, under Chief Executive Dick Costolo, has been spending heavily on growth -- including head count, which has almost doubled in the past year to more than 2,000. Yet Twitter also warned in its filing that revenue growth "will slow in the future," which could spook investors who care more about big growth than profitability.
Still, Twitter is coming to market as Wall Street's enthusiasm for IPOs is soaring. PricewaterhouseCoopers this week reported that there have been far more filings in the first nine months of the year than in all of 2012 -- 160 compared with 142. And tech companies have received some of the warmest welcomes.
PwC predicts that the momentum will continue through the rest of the year as "name-brand" companies such as Twitter embolden others to file. All told, the consulting giant projects this to be the strongest year for IPOs since the global Great Recession began in 2007.
The $1 billion figure in Twitter's filing also could grow between now and the time the company announces the size and targeted price range for its offering. Companies typically wait at least 21 days between filing paperwork publicly and exercising their IPO, in order to woo institutional investors in what is called a "roadshow."
Twitter will trade under the symbol TWTR, although it apparently has not yet decided whether it will list on the New York Stock Exchange or the rival Nasdaq.
Such heady days are a long way from 2006, when young hackers Evan Williams, Jack Dorsey and Biz Stone cooked up Twitter as an in-house app for group messaging. Although many outsiders initially regarded the service and its 140-character limit as a novelty, Twitter over time has become a go-to source of live information -- and a communication platform pliable enough for Middle East activists, U.S. politicians and aid workers in tsunami-ravaged Japan.
With 12 percent of the company, Williams is Twitter's largest shareholder, the filing shows. Dorsey, who actually created the app, owns nearly 5 percent, while venture investor Benchmark Capital owns a 6.7 percent piece. Other big stakeholders include investment firms Spark Capital, Rizvi Traverse, Union Square Ventures and DST Global, each of which owns about 5 percent.
But longtime Silicon Valley tech attorney Charley Moore called the S-1 filing "the most democratizing approach to post-IPO governance that I've seen lately." That's because Twitter's founders and early investors will hold the same "one share, one vote" stock as everyone else.
Moore, who was an early legal adviser to companies like Yahoo (YHOO) and WebTV and more recently founded San Francisco legal services startup Rocket Lawyer, said that in the same way Twitter claims to have "democratized content creation and distribution," the lack of a "supervoting" class of stock is a striking departure from companies such as Google (GOOG) and Facebook.
Like Facebook, Twitter generates the bulk of its revenue from advertisements, with businesses paying to promote their tweets in users' timelines. And in an auspicious sign for Twitter, the S-1 filing shows that more than 65 percent of its ad revenue was generated from users on mobile devices. Facebook's own share price was stuck in neutral for more than a year until it announced two months ago that mobile revenue was soaring.
Facebook continues to whip Twitter handily when it comes to users: The 218 million people that Twitter claims interact with its service at least once a month is dwarfed by its Menlo Park rival's 1 billion-plus. And, ominously, the percentage rate of Twitter's user growth has dropped in each of the past three years.
Blau, the analyst, also noted the millions of fake accounts that Twitter acknowledges, which makes it hard for advertisers to judge just how engaged its users are with the product. "But in general," he added, "Twitter has a very well-known brand around the world, and that alone is probably going to drive interest" in the IPO.
While some have questioned the timing of Twitter's offering, especially with congressional budget drama overhanging the economy, Blau said the company actually is coming to market with far more revenue than many other tech companies that have gone public. Given that the last three months of each year are typically when advertisers spend the most, Blau said Twitter could finish 2013 with more than $500 million in revenue.
Simply going public could drive future earnings, he added, since it will reassure advertisers of the company's staying power.
All that said, Blau warned that even a hefty IPO war-chest will go only so far in competing with Facebook's juggernaut. "Having $1 billion in the bank will let them fuel plenty of growth," but revenue needs to grow as well, he said.
"They're going to have to make sure that whatever they raise from the public markets is a 'nice to have,' not a 'have to have.' "
Contact Peter Delevett at 408-271-3638; follow him at Twitter.com/mercwiretap. Contact Jeremy C. Owens at 408-920-5876; follow him at Twitter.com/jowens510.
twitter by the numbers
218 million -- Monthly active users as of the end of June, up from 151 million a year earlier
$254 million -- Revenue in the first half of 2013, more than double what the company took in during all of 2011
65 -- Percentage of advertising revenue generated by users of mobile devices
$69 million -- Loss in the first six months of 2013, nearly as much as in all of 2013
12 -- Percentage of the company owned by co-founder Evan Williams, Twitter's largest shareholder
2,000 -- Full-time employees as of June 30, up 90 percent year over year
Source: Securities and Exchange Commission filings