We have covered Facebook’s IPO very close since day one and now we might do the same with the Twitter’s one, which seems scary after what happened with Facebook. The first day on the public market for the company located in Menlo Park was awful and no one was expecting it. We saw a lot of heads “decapitated” on that day. It seemed they played a stupid game and Wall Street wasn’t happy about their revenues, which are much more valuable than their numbers. It’s good to have a billion people using your service, but investors want to see their money coming back, so the pressure is a little greater than when you are in the private market.
I am not an expert in Financial Markets, so we won’t cover the financial aspects of what Twitter is going to do before the IPO, but the way the company will behave. At the moment, it seems they desperately need money and that if money doesn’t come in, they will need another round of investments. That’s why they have opted for an IPO. As most Tech sites have reported, they are expecting to raise $1B dollars that will give them more than what they need to turn into a profitable company. Yes that’s right, one of the most used micro blogging platforms in the world is still not profitable. If you stop for a second in the middle of a random road and ask the first stranger you meet if he/she thinks Twitter is profitable or not, the stranger would probably say “they are making billions”.
Everybody knows Twitter, a company that is 8 years old which has been able to attract celebrities and great Entrepreneurs from all around the world. There are dozens of companies that have built their brands on Twitter. It is a simple and great service that has also changed the way we speak; in 2013, “tweet me” has become a common phrase in the Urban Dictionary. No one would probably ask me the meaning of “Tweet Me”, because everybody knows.
Although Twitter is one of the most successful stories in the last decade, the numbers still don’t support this. Let’s see the most relevant statistics for us.
$1,000,000,000: the amount that Twitter is looking to raise in its IPO
$28,278,000: revenue in 2010
$106,313,000: revenue in 2011
$316,933,000: revenue in 2012
$253,635,000: revenue in the first half of 2013
$69.3 million: Twitter’s net loss in the first half of 2013
218,300,000: the number of monthly active users on Twitter, as of Q2 2013
100,000,000: the number of daily active users on Twitter
5 percent: the percentage of monthly active users judged to be falese or spam accounts
2,000: the number of employees that work at Twitter
$11,505,740: CEO Dick Costolo’s compensation in 2012
Revenues are growing exponentially and that’s what Investors want to look at. This is good news for them and for anyone who is looking to bet on Twitter in the next years. However it might not be the best news for Twitter’s users, who could end up seeing ads 24/7. Although Twitter has done so well, they are still struggling to find a way to monetize the platform. It turned out to be extremely difficult to use ads between tweets or promoted tweets. What I think they aren’t realising is that Ads aren’t the only solution to the problem. Is this the right time to change the whole internet’s business model? Ads are not going to survive and both Facebook and Twitter should be aware of that. This company should start looking at new ways to make money, which don’t have to be related to ads.
Further what has really shocked us was the number of monthly active users, which is five times less than Facebook’s number. Even Instagram, a three years old service, that was acquired by Facebook last year, it is close to that number with 150M monthly active users. What Twitter lacks at the moment, is a focus on the things that we share every day, photos and videos. These last two create a lot of interaction on Facebook, where we engage with the people we care about, and not on Twitter, where the world is looking at us.
With this data in mind, we are wondering if Twitter is still going to be a niche product or might one day overcome what Facebook is today. The company reports a 5 percent statistic of spam accounts, but a common user would probably say 20% just by looking at the people who are following his/her account. It’s still a huge problem and the level of porn/spam accounts is still to high. On Facebook we can decide not to interact with these accounts, but given the fact that Twitter is more “public”, we end up interacting with these accounts, making the whole user’s experience, “annoying”.
The last point we want to make about Twitter is the CEO’s compensation. We obviously accept the fact that Dick Costolo is doing a great job at Twitter, but with a company that is not making money yet, why would you agree on a $11M salary (in stock)? We acknowledge that his “official” salary was $200,000 in 2012 and that it was later taken down to $14,000. However there are companies that are making ten times what Twitter is making and their CEOs earn ten times less. The time to earn 1$ per year has come, Dick make this effort and try to turn this company into a profitable one.
The final question is, would you invest in Twitter? If I had the money to invest in this company, I would say yes at first, but then the thought of buying shares would stop me from doing so. Twitter is growing, but how far can they push their revenues stream? Are they really the next big tech IPO? We don’t know, but what we can see is that they could be easily overwhelmed by a simple and tiny startup that could be developing the next big thing while we write.