Twitter makes IPO filing public with implied $12.8 billion value

Company seeking to raise $1 billion

Twitter Inc.’s initial public offering documents suggested a valuation of $12.8 billion for the microblogging service, underscoring the seven-year rise of a still unprofitable company that has helped revolutionize how people share information.

In the most anticipated technology offering since Facebook Inc., San Francisco-based Twitter made public its S-1 prospectus today and said it’s seeking to raise $1 billion. Twitter pegged the fair value of its common stock at $20.62 a share. There are 620 million shares outstanding, according to people familiar with its financials, who asked not to be named because the number was not included in the filing.

The prospectus removes the veil of secrecy that surrounded Twitter’s financials since the company said on Sept. 12 that it had filed confidentially for an IPO. It shows how the microblogging service, founded in 2006, has evolved from a simple site for 140-character updates to a booming online- advertising business that generated revenue of $253.6 million in the first six months of this year.

“Whether it’s worth $12 billion or not is really going to come down to how they can embrace this real-time news and information vision, how they can extend it to other revenue lines and how they can grow around the world,” Brian Blau, a San Francisco-based technology analyst at Gartner Inc., said in an interview.

Roadshow Soon

With Twitter taking the wraps off its S-1, the company will soon embark on a roadshow to promote the deal. The IPO will be a test for investors burned in recent years by the offerings of Internet companies such as Facebook, Groupon Inc. and Zynga Inc., all of which plunged after their offerings. While Facebook shares have since climbed back, Groupon and Zynga are still trading below their IPO prices.

At $12.8 billion, Twitter would be valued at 28.6 times revenue over the past 12 months. Facebook debuted with price-to- sales ratio of about 26, while LinkedIn sold shares for 14.5 times revenue.

The offering will be pivotal for Chief Executive Officer Dick Costolo, who in 2010 became Twitter’s third CEO in as many years. He is credited with bringing management discipline, rapid hiring and a business plan to a company that was bogged down by a lack of focus and frequent technical outages.

Goldman Sachs Group Inc. was listed as the lead underwriter and was joined by Morgan Stanley, JPMorgan Chase & Co., Bank of America Corp., Deutsche Bank AG, Allen & Co. and Code Advisors. The stock will list under the ticker TWTR.

Twitter’s revenue in the first six months of the year more than doubled to $253.6 million. The company said advertising revenue per timeline view in the second quarter rose 26 percent from the same period a year ago to 80 cents.

Robust Mobile

Twitter also disclosed that a majority of its revenue derives from mobile advertising, an area where rivals have struggled. In the three months that ended in June, more than 65 percent of Twitter’s ad revenue was generated from mobile devices. Facebook said in July that mobile accounted for 41 percent of revenue in the second quarter, up from 30 percent the prior period.

Twitter posted a net loss of $69.3 million in the first six months of 2013, compared with a net loss of $49.1 million in the same period a year ago. The company said that as of June 30, it had incurred an accumulated deficit of $418.6 million.

“They have clearly built their business from the get-go in the direction of where users are spending time, which is on their phones,” said Clark Fredricksen, vice president at EMarketer Inc. in New York.

Risky Business

The company included 32 pages of risk factors, compared with 22 pages in Facebook’s IPO filing last year. Among those are Twitter’s dependence on U.S. advertisers, even as more than three-quarter of its monthly active users are located outside the country. Twitter also cited stiff advertising competition, the company’s youth, and even earthquakes as risks.

One challenge lies in expanding the site’s user base. In June, Twitter had 218 million monthly users, up 44 percent from the year earlier. That was slower than its 78 percent growth the prior year.

Twitter’s average revenue per user in the latest quarter was 64 cents based on its monthly active users and $139.3 million in sales. That’s less than half Facebook’s $1.60 average revenue per monthly user.

Next page: War Chest

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