“Significant operating losses in the past,” and doubt over whether or not the company would be able to “achieve of subsequently maintain profitability,” were referenced on page 23 of the filing, numbers made the situation clear.
Financials revealed that in the first 6 months of 2013, Twitter lost $67 million and is working off of an accumulated deficit of $418.6 million; considering revenues for 2012 were only $316 million, this is problematic.
In many circles, Twitter’s IPO has been compared to Facebook’s more successful IPO, which is turning a profit. What’s the difference? There are a few that have been overlooked that may contribute to the detriment of Twitter’s profit turning abilities.
The Valuation of Twitter
Twitter’s actual numbers left a lot to be desired. With an accumulated deficit of an amount 125% above their previous year’s revenues, they are not starting in the black. When Facebook went public, their valuation was around $100 billion, Twitter’s anticipated share pricing will be based at a level below $20 billion.
Where revenues are concerned, Facebook grossed $3.7 billion in 2012 compared to Twitter’s $316 million.
Advertisers – who comprise the major revenue sources for both companies – are drawn to users; the more users, the more potential profits. In this area, Twitter is a stark contrast to Facebook. With 215 million monthly active users compared to Facebook’s 901, they don’t have the numbers.
Advertisers want options. Facebook advertisements range from industry to industry and are able to attract niche marketers. 12 Keys Rehab Facility invests a substantial budget toward PPC, A/B testing, and a budget for non-profit initiatives using Facebook advertising. Facebook has the reach and flexibility needed to attract their target demographic. Due to strict state laws, 12 Keys creates custom Facebook advertising by state in order to comply with the law, and reach their specific target audience. Twitter advertising isn’t able to offer this flexibility yet. This makes the lack of profit over the past year and the potential for long-term success unnerving.
When it comes to potential, there is some hope for Twitter turning a profit. History-wise, the companies were similar leading up to IPO offerings, which means if Twitter wants to see the success of Facebook, there is a chance. Each company focused on growth for around eight years prior to going public.
Additionally, Twitter has seen exponential growth. While revenues were not as high as expected in 2012, it still tripled sales in 2012 and more than tripled in 2011. On average, over the past six quarters, the company grew an active user base by over 10 percent. Advertising is and has always been a focus along with technology development: more than 65% of its advertising is designed to appear on smart phones and mobile devices which increased revenue from $28 million in 2010 to where it stands now; this is better revenue growth than its competitor.
However, the research and technology needed to make these initiatives successful is also a detriment due to the costs involved. In this area, it brings down the ability to turn a profit, leaving investors concerned and the chance of a successful public offering less likely.
While the success or failure of Twitter’s IPO has yet to be demonstrated, the odds are not in the company’s favor. Based on the statistics and numbers alone, investors have the right to be wary and to look for other opportunities. But, nothing on the market is a guarantee and Twitter has proven determination and a focus on adapting to industry trends. As it stands now, however, the growth potential seems limited.