On October 4th, Twitter released their Initial Public Offering on the backing of quite a bit of hype after weeks of anticipation. With their IPO, Twitter released their $1 billion plan. The plan showed some rather unappealing financial numbers that Twitter had previously kept private. This includes a $13 billion dollar self-evaluation based on assets and projected share prices, but it also included confirmation of the fact that Twitter has yet to produce any positive revenue in a single fiscal year. However, they have been progressing and slowly increasing towards the break-even point from year to year. Some see the rise as a positive, but most others find major concern in the lack of revenues and the resulting evaluation. As it was with a company like Facebook, analysts question whether or not Twitter’s platform and business model will ultimately lend itself to further profits and in turn whether or not Twitter can, overall, be a profitable company. Twitter itself has emphasized it’s increasing ad platform and notes that during the first two years of their platform there was little to no attention paid to advertising; meaning Twitter has only had major advertising for a few years. Again, analysts question whether or not Twitter will be able to optimize their advertising platform to a point of profitability. As it stands a large portion of Twitter’s users use a mobile device as their main means of connecting to the platform and mobile ads, where one is limited to a small space and no videos, can be very tricky to sell. One thing that Twitter does have going for it is it’s increasing user base as well as it’s predictable peak periods. As is the case in television, companies pay more for ads that they know will be played during “Prime Time”; during sporting events, during popular shows, during prime general T.V. watching hours. The same can be said for Twitter. Twitter has become the most used companion to major television and in-person events where users tweet about their own experiences while also interacting with others who are doing the same thing as them. While not as predictable, the same effect occurs during major breaking news as Twitter has become a large platform for news. Lastly, as Bloomberg’s Nick Thompson mentioned Twitter has another source of potential revenue in data sales. Because Twitter is all about trends and topics, large companies and organizations have and will be interested in the data that Twitter can provide such that the companies and organizations can conduct their own analyses. Overall despite concerns about profitability, Twitter has been able to raise a substantial amount of money in their IPO and has a constantly growing user base. As more users come to Twitter and embrace all that it offers, Twitter will have ample opportunity to become profitable assuming they are able to optimize their advertising to some extent.
Sources:
Twitter IPO Falls Between Zynga, Facebook: Thompson – Bloomberg
The short message from Twitter’s IPO? #SlowingGrowth – Globe & Mail
Twitter Reveals $1 Billion IPO Plan – Wall Street Journal
Photo Courtesy of Josh Semans