As Twitter ramps up for its much-anticipated listing next month, it has posted what some are calling its biggest-ever loss, even as revenue continues to grow rapidly.
However, this does not seem to have weakened interest in the company and its planned debut on the New York Stock Exchange, reportedly set for 15 November. Twitter will be the only one of its peers to list while being loss-making.
Twitter wants to raise $1 billion on listing, and - although the final share price has yet to be made public - it is expected to be worth $12.8 billion. This is a 10th of what rival Facebook is worth, but Facebook is making money and has shown it can turn its mobile platform into an income source.
By comparison, the much smaller 140-character network, in an updated filing, has reported a $44 million loss, up from $34.9 million in the nine months to September 2012, and larger than the total loss for 2012.
Cost base
Vestact analyst Sasha Naryshkine, who has pegged Twitter stock at around $25, says Twitter has never made a profit, but this is a fact people are well aware of. He says it is not like other social media companies - Facebook, LinkedIn and Tencent - that do make money.
Twitter may be risky, but is growing at a rapid pace and people are buying into that dream, Naryshkine notes.
He says Twitter's choice of the New York bourse instead of the tech-heavy Nasdaq, where Facebook has its home, could be a signal that it sees itself as a media company, and not a tech entity.
The increased loss comes despite revenue doubling year-on-year - from $204 million to $422 million - but is explained by large increases in research and development and sales and marketing costs. Both of these expenses have increased several times since last September.
Naryshkine says Twitter needs to invest in research and development to boost its product line. He adds it is a small company relative to its peers, but interest is increasing.
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.
Dream big
Absa Investments analyst Chris Gilmour says "a lot of people are sitting up and starting to take notice of this thing". He notes Twitter is one of the factors converging to contribute to the demise of print, as the micro-blogging service publishes news as it happens.
However, Gilmour points out that the hype surrounding the stock is "an act of faith". He notes there have been past instances in which rapid top line growth has filtered through to the bottom line.
Reuters quotes Karl Mills, president and chief investment officer for private investment adviser firm Jurika, Mills & Keifer, in San Francisco, as saying: "It's worth having exposure to a name like Twitter, although you have to take a conceptual leap of faith with regard to valuation, and say it's a unique franchise that isn't likely to go away.
"Like Twitter, Amazon was in investment mode for a long time. They still are, so that doesn't worry me."
However, social media is transient, and people quickly lose interest and move onto the new fad, says Gilmour. He cites BlackBerry's demise as king of the smartphones as an example. "It's the essence of technology."
Twitter has labelled itself as an "emerging growth company". Its common stock was last valued about two months ago at $20.62 share.
Its user base is growing and its revenue from advertising is gaining momentum as well. In the three months to September, it had 231.7 million average monthly average users, a 39% increase year-on-year.
Of these, 52.7 million are in the US, with the balance coming from the rest of the world. Naryshkine notes this gives Twitter scope to grow.
Revenue from advertising has increased from $7.3 million in 2010, to $374.9 million in the first nine months of this year. Twitter makes most of its money from advertising, and a small segment from selling data to third parties.
Gilmour says Twitter's advertising strategy is not clear as, apart from promoted tweets, ads are not prevalent and obvious.
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