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.
Twitter Explains Its Monetization Plans as IPO Nears
Weill said Twitter is now better at monetizing its “promoted trends” income streams.
Using as an example a recent Samsung campaign for its Galaxy 4 smartphone and smartwatch combination, Weill said that “we’re finding that their aggregated promoted trends brought a lift in brand conversation, we saw a 30 percent lift in positive mentions, and across all the types of conversations–from considerations to intent to try out to purchase–we saw increases in the amount of conversation from running promoted trends.”
Twitter reports that people exposed to promoted trends are 30 percent more likely to search for that particular product and 50 percent more likely to visit product Websites, Weill said.
Lead-Generation Tool Coming
A new Twitter product that’s just now ready for prime time is a lead generation tool.
Weill said that “we’ve actually built a product for this on Twitter. It’s called the Lead-Gen Card, and what it does is massively shorten the distance between an impression and a conversion, which is a lead generated on Twitter. Right within Twitter, you can run a lead-gen campaign, based on the fact that we know who the user is; we have username, Twitter handle, and we have email for them.
“Rather than making somebody fill out a form to submit an email address for a product they’re interested in, they can click a single button across devices and whether it’s on the Web, on a mobile device, on a tablet … It’s a single click, it just works, and we’re seeing great results from it,” Weill said.
The distance between an impression and a conversion is very small, regardless of the platform you’re on, Weill said, so the easier the process is, the better.
Another new revenue-producing product in the works is a traffic-conversion product, which it intends to sell to retailers. This measures how the social network drives conversions to commercial Websites. It’s now in beta testing.
Can Twitter actually affect in-store sales with promoted tweets? Yes, Weill said. On this, the company is working on monetizing a new, as-yet-unnamed service with Datalogix, which has access to retail and services purchases via loyalty cards.
“The way this works is that you run a promoted tweet on Twitter; then someone who sees the tweet actually makes a purchase in the store,” Weill said. “We can do a double-blind, privacy-preserving data match with Datalogix–Twitter never sees Datalogix, Datalogix never sees Twitter privacy data–and we’re able to compare for a user who was exposed to the campaign versus a user who was not exposed to the campaign, and how did that person’s behavior change?”
Datalogix is able to identify users who look identical in their spending behaviors over the last six months and determine their brand-following activities after they are exposed to a promoted tweet campaign. “They are able to look at how their purchasing behavor changes,” Weill said.
“We’ve now done about 40 of these studies, and the aggregates across them show just one exposure to a promoted tweet drives an 8 percent lift in sales,” Weill said.
Television Targeting on the Way
Finally, Twitter is also working on a television-targeting product. Turns out that millions of TV viewers tweet their friends while watching their favorite shows. An example of this was the final episode of the wildly popular AMC cable network drama, “Breaking Bad,” when millions of viewers traded opinions in real time about the surprise ending to the show.
“We think Twitter makes TV better, and that TV makes Twitter better,” Weill said. “They are complementary platforms. We’re working with a company that maps conversations on Twitter with television shows and their commercials and when the commercials run. We’ll give advertisers a way to reach those Twitter users–either synchronously, right as the show is happening and they’re still watching–or the next day as they wander around the store.”
One could say the business and creative imagination at Twitter has no lack of substance. This is why its IPO is such an anticipated event.