Twitter, set to be the most high-profile tech listing since Facebook burst onto the bourse 18 months ago, is offering investors a growth dream even as it cautions on future profitability.
Twitter has yet to reveal a price range, although an analyst has run the numbers and came up with a listing market capitalisation of $12.8 billion - a far cry from the $100 billion Facebook was worth when it splashed onto the Nasdaq.
Twitter, which pushes out more than 500 million tweets a day, has proposed the share code TWTR, which is similar to the abbreviation contained in the first tweet, sent by co-founder Jack Dorsey, on 21 March 2006.
Dorsey, credited with creating the 140-character sharing network, tweeted: "Just setting up my twttr."
Small fry?
Facebook, the biggest tech listing at the time, saw its stock plummet 16% after a week as reality set in and questions started being asked about just how much it was worth. A year-and-a-half later, and those who stayed the course have seen their initial investment grow by a third as the stock is now at $51.06 - compared with the $38 it listed at.
Vestact analyst Sasha Naryshkine pegs Twitter stock at around $25 a share, but says in a note that he is "#justguessing". This would make the loss-making company worth $12.5 billion. Reuters reports that punters are putting the value at between $10 billion and $20 billion.
Twitter, with more than 200 million monthly active users, has labelled itself as an "emerging growth company". Its common stock was last valued about two months ago, at $20.62 share. "People are paying for the future here," says Naryshkine.
Absa Investment analyst Chris Gilmour expected the company to be a bigger debut than its numbers suggest. He points out that LinkedIn - at $27.4 billion - is worth more than Twitter.
Naryshkine says people are buying into the growth potential. Twitter says there is a "significant" opportunity to expand its base. This will come through geographic expansion, although at slower growth rates, more mobile applications, and product development.
Opportunities also lie in platform partners and advertising, as it believes it can increase the value of its platform to make it more attractive to advertisers. Mobile drives Twitter, and accounts for more than 65% of its revenue, while three-quarters of its monthly users tweet through mobile devices, according to its filing.
Naryshkine says revenue has risen tenfold from 2010 to 2012, while costs are up three times in the same period. Twitter is "growing at a breakneck speed", he adds. "Early investors have been keen to invest in the business."
Risky business?
Yet, Twitter has made losses three years running. In the six months to June, it reported a gain - year-on-year - in revenue, to $253.6 million, but at the same time its loss surged 41% to $69.3 million. It has also cautioned that outstanding equity awards will weigh on its ability to move into the black in 2013 and 2014.
Twitter does not expect to declare any dividends in the "foreseeable" future.
Some of its income is made from selling data as it offers licences that allow partners to search and analyse tweets; both historical and real-time. Naryshkine says it is not just about advertising, but also about other opportunities such as applications to turn tweets into useful data.
Twitter warned, in its registration statement, that it faces several risks, among these being a failure to grow its user base, a loss of advertising (its biggest revenue source at 85%), users posting useless tweets, or not tweeting, and a need to expand internationally.
"A number of consumer-oriented Web sites that achieved early popularity have since seen their user bases or levels of engagement decline, in some cases precipitously. There is no guarantee that we will not experience a similar erosion of our user base or engagement levels," it says.
Twitter notes that it competes against many companies to attract and engage users. This includes companies that "have greater financial resources and substantially larger user bases", such as Facebook (including Instagram), Google, LinkedIn, Microsoft and Yahoo.
It cautions that these companies could grow at its expense.
Twitter adds it could face government shutdowns, lawsuits and intellectual property claims. It may also need more capital to support operations, or the growth of its business, it says.
The social media network spends substantially on research and development - $24.2 million in the six months to June - and has ramped up its staff complement, adding 1 800 people to its payroll between January 2010 and the end of June. It intends to keep investing, and hiring.
Proceeds from the listing, through which it wants to raise $1 billion, are set to go into working capital and capital spending. It expects to spend between $225 million and $275 million on capital this year as it ramps up.
"Yes, risky, but growing like crazy," adds Naryshkine.
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