SAN FRANCISCO--Twitter, which has selected the New York Stock Exchange to host the TWTR account for its initial public offering of stock on Nov. 15, has been in business since March 21, 2006, but has yet to make a dime to put into the bank.
The San Francisco-based social network is planning to raise about $1 billion in the stock sale. The price at the IPO opening has been estimated by Bloomberg analyst Adam Johnson to be around $21. Others believe it will open in the $15-$20 range.
Despite the fact that it is now one of the most popular and trafficked social networks in the world, it will still take a leap of faith for many investors to shell out their cash for TWTR.
In the prospectus it released Oct. 3, Twitter reported a net loss of $79 million last year and $69 million for the first half of 2013. Even after adjustments for stock option compensation, depreciation and other items, the company still has suffered steady losses during its years as a private company.
Financial Upside is Huge
Nonetheless, due to its growing worldwide influence, a steadily increasing list of users and an effective advertising reach, Twitter's upside is huge and the IPO still is the most anticipated stock sale of 2013. Goldman Sachs will be the lead underwriter.
Its seven-year track record not withstanding, the company is confident that it can take its current lineup of three income-producing products and, with a little creativity, build them into a full-fledged Web service that can expose highly targeted advertising to its millions of users.
Its trajectory is decidedly up and to the right. In its second quarter this year, Twitter reported 218.3 million average monthly active users, up a whopping 44 percent from a year ago. It estimated that users tweet between 200 million and 250 million times per day, so there's no question they are engaged with the network at all hours. Revenue for the first half of this year was $253.6 million, more than double the first half of 2012, the filing reported.
eMarketer.com reported that it believes the company will bring in $582 million this year from advertising. Twitter also makes money by licensing use of its aggregated data to other companies.
Securities analyst Michael Pachter of Wedbush Securities said his firm has evaluated Twitter's current worth to be "between $15 billion and $16 billion, and that's up from $9 billion to $10 billion a year ago."
What the Future Holds
How exactly will Twitter build its business in the future? One can assume that it will entail a lot more than sponsored tweets--although those are the main source of revenue at this time.
"Anything that happens in the world plays out on Twitter," Twitter Director of Products for Revenue Kevin Weill told an Advertising Age-sponsored conference here at the Ritz-Carlton on Oct. 15. "It's a series of 'now' moments. Some of those moments you can't plan for, but a lot of them you can, and we're increasingly seeing brands and marketers plan for the moment."
A prime example of this: The birth of the royal baby.
"This, of course, spawned an immense amount of conversation," Weill said. "Claridge House (where the Duke and Duchess of Cambridge awaited the birth of little George) live-tweeted the birth; we were seeing 25,000 tweets per minute, 15,000 retweets of some messages, 3,000 retweets of others, and so on--all about the royal baby."
Marketers have an opportunity to enter the conversation in an authentic way, Weill said.
Disposable diaper company Pampers, for example, wrote in a promoted tweet: "Every little baby is a Prince or Princess." Coca-Cola paid to tweet: "Time for a Royal Celebration," with a photo of two bottles of the soft drink--one for William and one for Kate. Oreo spent ad dollars on "Prepare the royal bottle service (milk, of course). Long live the cream."
Famously, Oreo also used the Super Bowl's momentary power outage last Feb. 3 to its tweeting advantage: "Power out? No problem. You can always dunk in the dark." That one got some 16,000 retweets and 6,000 favorites.