Late last week, Twitter finally made their application for their IPO public through the SEC with their S-1 filing, which explains the company’s intentions of going public as well as their past financial details. Inside of the document, there are hundreds of pages, however, you can find some very interesting information about the company within the S-1 filing since they have to make so many things known to potential investors. First and foremost, Twitter will be taking over the TWTR stock ticker from a company that is listed under TWTRQ and is currently experiencing a boost in share price and volume as a result of Twitter’s IPO. They actually have nothing to do with Twitter, but it seems like some investors are blindly buying the stock without realizing that it isn’t the actual Twitter ticker.
Nevertheless, Twitter’s S-1 filing has shown some interesting details about the company’s past earnings, executive compensation and their own beliefs about potential risk factors to the company’s success. They even included information about when Twitter first started and how the first tweet came from Jack Dorsey in 2006 stating, "Just setting up my twttr."
Twitter also detailed about how many monthly active users the company is currently handling on Twitter as a social media platform. Twitter is reporting that at the current moment, the company is experiencing an average active monthly user count of 218.3 million users, which is a significant number of active monthly users. However, it is still nowhere near as much as Facebook’s 1,150 million users. Even though Facebook [NASDAQ:FB] has about 5x as many users they earn about $5 of revenue per user, while Twitter earns about $1.45 per user. Facebook was barely profitable in 2012, with only $53 million in profit for the whole year which was partially a result of their IPO and all of the costs associated with employee stock compensation.
The truth is that a lot of people are pretty cautious about Twitter’s IPO purely because of the initial reaction towards Facebook’s $38 IPO, which ended up tanking. It took them almost an entire year to recover from the initial drop after their IPO, with the earnings announcement on July 24th, which saw the stock jump nearly 35% (from $25 to $34). Since then, Facebook has been trading pretty strong, currently sitting above $50 a share, meaning that even people that got in during the IPO and stayed have made a pretty penny. Either way, this is one of the primary reasons why people are cautious about investing in Twitter’s IPO. Both companies are social media monsters and they are competitors, even though their business models are fairly different.
It is also interesting to see how Twitter’s top brass, Dick Costolo, Adam Bain and Christopher Fy are being compensated. Each of the three of them gets a salary of $200,000 per year, supplemented with millions of dollars in Twitter stock. Dick Costolo and Christopher Fy both saw over $10 million in the form of stock compensation for 2012. This appears to be incredibly generous considering that the company ended up posting a net loss for 2012 of $80 million. Keep in mind, these are the top two most compensated employees along with the CEO himself, which means that there is likely much more money being distributed among other employees as well. Although, it would be a shame to see all of the executives being paid very well and the company posting a loss while the lower level employees don’t see any sorts of stock bonuses. Hopefully the disparity isn’t too great and even the lower level engineers at Twitter are seeing some benefits of an IPO.
Based on Twitter’s business model, they have a lot more room for growth and improvement. However, they also need to decide what they are going to do about the lack of profitability. Even Facebook was profitable when they went public, and that most likely helped their valuation since Facebook’s valuation was hovering around $100 billion, while Twitter’s sits around $12 billion, at $20.62 per share. The company expects to raise approximately $1 billion from the upcoming IPO and more shares will likely begin to change hands as more executives and employees are allowed to cash out their options.
Since Twitter is a very well known brand and $20 is a very accessible price, I believe that many investors after the IPO may end up being retail or consumer investors. Since the IPO will be handled by Goldman Sachs, Morgan Stanley, BoA Merrill Lynch, J.P. Morgan Chase, Deutsche Bank, and others. This will certainly be a big IPO, and I have a feeling that the first batch will likely be sold to institutional and big-time investors so I wouldn’t expect the stock to move too drastically, but I would expect that it will move upward. However, people thinking to buy shares in Twitter need to keep in mind the price that they’re paying and whether or not the company’s shares are actually worth that much.
Twitter is clearly growing at an impressive pace as a company, however it remains to be seen how much bigger than can get and if they can reach the level of ubiquity that Facebook experiences. Furthermore, Twitter still grapples with issues like fake accounts and spam accounts much more than Facebook. As a frequent user of Twitter with almost 25,000 tweets I can tell you that I’ve had my fair share of Twitter spambots and the spambots continually evolve into new usage models to encourage interaction, and ultimately, clicking.