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Twitter Still Far From An IPO

Posted on Friday, Jan 20th 2012

With the Facebook IPO expected in May of this year, speculations regarding Twitter’s IPO have come to the fore. Twitter is estimated to have hit revenue of $139.5 million in 2011, more than three times its revenue of $45 million in 2010. In September 2011, Twitter raised $800 million in an investment round that valued the company at $8.4 billion. Though Twitter has started to generate revenue, it is still vastly unprofitable, and it is hard to justify the company’s sky-high valuation or an IPO.

Twitter announced last year that the number of active users was 100 million per month, with Twitter.com receiving more than 400 million monthly unique visitors. Twitter is expected to hit 500 million users this February. It is expected to reach revenue of $400 million to $500 million by 2013. According to eMarketer, a digital intelligence firm, Twitter’s advertising revenue will have grown to around $400 million annually by 2013. Another secondary research firm, SharesPost, estimates revenue of $329 million by this year, $500 million by 2013, and $1 billion by 2016.

However, to get a more balanced perspective, a comparison with Facebook is inevitable. Facebook is approaching one billion users. Its advertising revenue in 2011 was $3.8 billion and is expected by eMarketer to reach $6 billion in annual revenue by the end of this year. If you look at revenue per user, Facebook gets about $4 per active user, while Twitter gets less than $1 per user or $1.4 per active user.

Shawn Hess on WebProNews names three factors that could contribute to the possibility of an IPO in 2013:
“First off, private trading of Twitter stock is growing and under current United States Securities and Exchange Commission guidelines, all privately traded companies with over 500 investors must disclose their financial particulars (very much the same way a publicly traded company must). Twitter may well be reaching this mark in the near future and want to reap the advantages of going public.

Second, Twitter’s management teams appear to be growing heavy with members well-versed in running publicly-traded companies. Why employ the expertise without exercising it?

And third, the current success of recent IPO’s like Groupons, and the much anticipated Facebook IPO, could be the kind of momentum to make this IPO speculation a reality. The market seems to be ripe for Internet IPOs right now. Why not raise the capital?”

In other words, make hay while the sun shines!

Twitter CEO Dick Costollo said in September 2011 that Twitter doesn’t need money for a long time and will go public only when it is ready. And one of the key questions that has yet to be answered is profitability.

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