Twitter reveals fast growth, net loss in IPO filing

Alistair Barr | USA TODAY

SAN FRANCISCO — Twitter's IPO filing Thursday put the micro-blogging service on course for a November stock market debut and revealed a company growing rapidly but spending heavily to keep that momentum going.

Twitter said in the filing that it plans to raise as much as $1 billion, although such early disclosures can change as the initial public offering progresses. The stock ticker will be TWTR, and the banks leading the offering are Goldman Sachs, Morgan Stanley and JPMorgan, according to the filing with the Securities and Exchange Commission.

The public filing marks the next step in what is the most important technology IPO since Facebook's flawed market debut in 2012.

Twitter has become a powerful way to share information, used by corporate chieftains, presidents and kids alike. However, the company has only recently begun to try to make money from its service — and the public IPO filing gives an important insight into how this effort is going.

Twitter reported revenue of $254 million in the six months ended June 30. That's more than double the $122 million in revenue the company generated in the first half of 2012. The company also reported a net loss of $69 million in the first half of this year, which compares with a net loss of $48 million in the same period a year earlier.

"We were expecting revenue of about $310 million, but they are growing fast, which is what's important," said Michael Pachter, an analyst at Wedbush Securities.

The net loss is a function of how much Twitter is choosing to spend to fuel future growth, Pachter added. And the filing suggests that the company is pushing hard in this area. Expenses reached $316 million in the first half of 2013, up from $169 million in the same period of 2012, as Twitter spent heavily on research and development and sales and marketing.

Twitter said in September that it had filed IPO documents with regulators confidentially under a new law that allows companies with less than $1 billion in annual revenue to keep such details under wraps. However, companies are required to make the documents public about three weeks before the start of "road shows" in which they meet with potential investors in the IPO.

Twitter's public filing suggests that its road show will start in late October. Road shows typically last a week or two, so Twitter shares could debut in November.

Twitter said in Thursday's filing that it wants to become an indispensable companion for "live human experiences," adding that it plans to grow by expanding its user base, branching out internationally and making ads on its platform more relevant.

The company has a long way to go. Twitter's annual revenue may be about $600 million this year, while social media rival Facebook generated more than $5 billion in revenue last year.

Twitter said it has more than 215 million monthly active users. That compares with more than 1 billion for Facebook at the end of 2012.

"Revenue was slightly lighter than expected, and user growth is slightly slower," said Santosh Rao, an analyst at Greencrest Capital. "Twitter needs to either increase monetization or increase their user base to really grow their revenue numbers."

Wedbush's Pachter said Twitter is not as easy as Facebook to understand and use, which has limited user growth.

"It's not well understood by Wall Street," he added. "I bet 80% of institutional investors probably had not used Twitter before the company said it had filed for an IPO confidentially last month. Whereas 80% of institution investors had probably used Facebook before its IPO last year."

Indeed, Twitter said one of its growth strategies is to make its service simple and easy to use, particularly for new users, according to Thursday's IPO filing.

Still, both Rao and Pachter expect the IPO to be well-received by investors.

"Investors don't understand Twitter," said Pachter. "But once they explain what they are, investors will love them. Twitter is a place to conduct extraordinarily focused real-time news tracking and research. It's a great service."

Twitter has already cracked the mobile challenge — something that took Facebook longer to address. In the second quarter of 2013, Twitter said 65% of its ad revenue came from mobile devices. In contrast, mobile revenue is still less than half of Facebook's total revenue.

A lot of Twitter's users are overseas, while most of the company's ad revenue comes from the U.S.

"That's a revenue growth opportunity later on," Greencrest's Rao said.