Today: Twitter publicly files bare-bones prospectus in terms of share price and valuation, but discloses a raft of important data. Also: Wall Street tumbles as government shutdown drags on.
The Lead: Twitter's revenues and user base are growing, but so are losses
Twitter's initial public filing for its highly anticipated initial public offering disclosed little in terms of the price of the San Francisco company's debut batch of shares or the total valuation. The prospectus does, however, give plenty of data about Twitter's business that has not been made public in the past, information potential investors will begin to pore over as they decide if the social network is a worthy investment.
REVENUES: Twitter has placed a great deal of emphasis on generating revenue since its chief operating officer, Dick Costolo, took over as CEO in 2010. That focus seems to have paid off: Twitter went from total revenues of $28.3 million in 2010 to $106.3 million in 2011 and $316.9 million in 2012.
Revenue growth has continued so far this year: In the first six months of this calendar year, Twitter has generated $253.6 million, double the revenues from the same period in 2012. While on pace for more than $500 million in revenues for this calendar year, that pace could quicken, as Twitter noted that it has seen big seasonal jumps in revenue from the third to fourth quarter in each of the past two years.
"Our advertising revenue increased 63 percent and 45 percent between the third and fourth quarters of 2011 and 2012, respectively," Twitter noted in its filing with the Securities and Exchange Commission, while revenue growth was much slower in the subsequent quarter, including just 1 percent in the first quarter of 2013.
However, Twitter also stated in its filing, "We expect that our revenue growth rate will slow in the future." Investors like to bet on big growth, so Twitter's honesty may hurt it with some, but rational investors understand that annual revenue increases of 300 percent, as Twitter has exhibited each of the past two years, are extremely unlikely to occur long-term.
As Facebook has recently shown, the ability to generate mobile revenues can be more important to Wall Street than overall revenue growth, and Twitter actually has Mark Zuckerberg beat on that front. While Facebook's struggling stock suddenly doubled in the two months since the Menlo Park company announced that 41 percent of its advertising revenues were derived from mobile, Twitter goes to market with more than 65 percent of its advertising revenue generated from mobile.
Twitter derives most of its revenues from advertising, but also typically generates about 10 percent of its total from licensing data, giving marketers better understanding of their targets. The company brought in $18.3 million from data licensing in the second quarter of 2013, the most recent data Twitter provides, while generating $121 million from selling ads.
One target for growth will be international ad sales. The company derived just 25 percent of its profits from outside the United States in 2012, but a large majority of its users were overseas.
USERS: It has long been said that a social network's main "product" is its users, in that the audience for advertisers and the data that can be mined are the revenue generators, so investors want to see strong growth rates that can possibly continue. Twitter claims more than 200 million users interact with the service at least once a month, generating more than 500 million tweets a day.
While the service has managed to grow steadily throughout the years, it has not shown great spurts of growth like Facebook, which has more than a billion users worldwide, and that growth seems to be slowing down.
In the past three years, Twitter has grown from 40 million users to 85 million users to 151 million users to 218 million users in its most recent count, reflecting a decreasing percentage of growth each year. As noted above, international users are the majority for Twitter by a decided margin: The company's most recent data shows that 169.1 million people used the service at least once a month, while in the United States, the average was 49.2 million.
In addition, Twitter said that millions of accounts are fake, part of a problem with the service that it noted in its risk factors by stating, "Spam could diminish the user experience on our platform." Twitter says that fewer than 5 percent of its users are fake, which would still mean more than 10 million fake accounts.
Similar to revenues, though, the users it has are heavily into mobile devices, while advertising on mobile is starting to heat up. Twitter said that a full 75 percent of its users are accessing the service on a mobile device every month, up from 66 percent the year before.
PROFITS: The amount of money a company makes seems to matter little to IPO investors, who bet on the company's ability to continue growing revenue until profits are easier to generate. Still, it is important to deduce how and why a company is losing money, which Twitter is: The company has lost a total of $418.6 million since being founded in 2006.
Twitter lost $67.3 million in 2010, then jumped to a $128.3 million loss in 2011, but managed to cut that to $79.4 million in 2012. In the first six months of this year, however, Twitter has been in the red to the tune of $69.3 million, so it is likely already ahead of last year's total losses.
One of the big reasons for this is the company's huge employee growth. In the past year, Twitter has grown its workforce by 90 percent, to 2,000 full-time employees; the company had less than 200 employees at the beginning of 2010. While keeping general and administrative costs consistent despite those gains, Twitter has spent big on research and development, efforts that can pay off in the future. Twitter increased R&D spending by more than 300 percent from 2010 to 2012, when it spent $119 million, then spent almost that much -- $111.8 million -- in the first six months of this year.
SV150 market report: Tesla drops again, Facebook rebounds after Instagram ad announcement
Wall Street took a downturn on the third day of a government shutdown, with all three major U.S. indexes declining Thursday, led by the Nasdaq at 1.1 percent. Silicon Valley stocks we hit even harder, declining 1.3 percent as Tesla Motors (TSLA) continued to slide and large-cap stocks joined in the fall.
Tesla suffered its second consecutive session of steep declines after video of a Model S on fire in Washington state was widely publicized Wednesday. Other electric cars have had issues with batteries catching fire, but Tesla officials stressed that the fire captured on tape was due to a large metallic object colliding with the battery pack -- "This was not a spontaneous event," company spokeswoman Liz Jarvis-Shean said. Tesla stock fell 4.2 percent to $173.71 and has now descended more than 10 percent in the past two days after increasing more than 400 percent so far this year.
Facebook also fell, but the company gained in after-hours trading after Instagram announced that it would begin serving ads to its users. Facebook committed $1 billion to the acquisition of Instagram in April of 2012, but the photo-sharing service has generated little to no revenue so far. That should change in the next couple months as photos and videos from brands will begin appearing in users' streams even if they do not follow the companies' accounts, according to a corporate blog post released after the markets closed Thursday. Facebook dropped 2.2 percent to $49.18 in Thursday's regular session, but rallied back closer to $50 a share in late trading.
Adobe (ADBE) declined 1.2 percent to $50.88 Thursday, then fell another 0.6 percent in late trading after admitting a breach that endangered source code and user information after being alerted by journalist Brian Krebs. Apple (AAPL) fell 1.3 percent to $483.41 after the Securities and Exchange Commission revealed an investigation into the Cupertino company's Irish tax exemption, and Yahoo (YHOO) declined 0.8 percent to $33.88 after getting slapped with a lawsuit for scanning emails, similar to a case Google (GOOG) currently faces; Google fell 1.3 percent to $876.09. One of the few Silicon Valley stocks to gain Thursday was Yelp, which moved 0.5 percent higher to $71.02 after Wunderlich analyst Blake Harper boosted his price target on the San Francisco company to $82 because it "has become better positioned with new products to capture marketing spend from local businesses."
Up: Aruba, Ubiquiti, SolarCity, Yelp
Down: Tesla, Zynga, VMware, Netflix (NFLX), LinkedIn, HP, Facebook, Salesforce, EA, NetApp, Pandora, SunPower (SPWRA), Cisco (CSCO), Google, Oracle (ORCL), eBay (EBAY), Apple, Intel (INTC), Adobe, Gilead
The SV150 index of Silicon Valley's largest tech companies: Down 17.86, or 1.32 percent, to 1,332.63
The tech-heavy Nasdaq composite index: Down 40.68, or 1.07 percent, to 3,774.34
The blue chip Dow Jones industrial average: Down 136.66, or 0.9 percent, to 14,996.48
And the widely watched Standard & Poor's 500 index: Down 15.21, or 0.9 percent, to 1,678.66
Check in weekday afternoons for the 60-Second Business Break, a summary of news from Mercury News staff writers, The Associated Press, Bloomberg News and other wire services. Contact Jeremy C. Owens at 408-920-5876; follow him at Twitter.com/jowens510.