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Tweet cashout: #Twitter plans US$1b #IPO

Its filing with the US Securities and Exchange Commission reveals an implied internal valuation of about US$9.7b

Published Fri, Oct 4, 2013 · 10:00 PM
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TWITTER, the Internet's megaphone and proxy for social standing, has aptly bared all as it plans to go public and raise up to US$1 billion.

The social media site's filing to the US Securities and Exchange Commission (SEC) yesterday revealed Silicon Valley-esque proportions: 300 billion Tweets to date (about 42 Tweets for every person alive), 500 million Tweets daily and an implied internal valuation of about US$9.7 billion.

Other numbers in Twitter's preparatory filing for an initial public offering (IPO) were large for unnerving reasons. Prospective investors learnt yesterday that Twitter has bled US$418.6 million in accumulated deficit since its co-founder Jack Dorsey sent out the firm's inaugural Tweet ("just setting up my twttr") in March 2006.

While Twitter's revenue has grown 11 times since 2010, it has also spent money faster than people could Tweet about Miley Cyrus's twerking, posting a net loss of US$79 million for 2012.

Even as Twitter's financials appear to be a few characters short of a Tweet, the service has slid to the front of the Internet's consciousness and come to rule it over the last seven years.

Unlikely overlap

That Twitter now occupies the unlikely overlap of the personal, political and commercial is evident in its SEC filing - almost certainly the first one in history to mention Osama bin Laden, Barack Obama and Mario Batali in the same space.

In the filing, Twitter reminded the market of the iconic Tweet that President Obama posted after winning the 2012 US presidential elections. His Tweet, which was viewed 25 million times, had simply said: "Four more years".

For messages that are stoppered at 140 characters, some of them have contained earth-shattering news, such as the Tweet posted by a local resident in Abbottabad, Pakistan, who unwittingly became the first person to tell the world about the raid on Osama bin Laden's compound.

Even the Holy See has not been immune to Twitter's charms. Pope Francis has more than three million followers on the service.

Against this backdrop of soaring prominence, Twitter has itself been on an inexorable upward trajectory of valuation. In 2011, it pegged the fair value of its common stock at US$13.05 apiece, based on a round of financing. By August this year, that fair value had ballooned to US$20.62 a share.

Based on the 472,613,753 shares of common stock outstanding, this works out to Twitter being worth US$9.7 billion. Including equity awards, this figure swells up further to about US$13 billion.

While the service has all-time high number of 218 million monthly active users (MAUs) as at June this year, it is barely a fifth of Facebook's 1.15 billion MAUs. Twitter's ad-driven revenue, at US$253.6 million for the first six months of 2013, is less than a tenth of Facebook's US$3.3 billion for the same period. Last year, Facebook raised US$16 billion in its own IPO.

Against the backdrop of cashburn, Twitter's revenue growth might not be able to keep up. "We expect that our revenue growth rate will slow in the future as a result of a variety of factors, including the gradual slowdown in the growth rate of our user base," it said.

Even with a slackening revenue curve, Twitter's costs are slated to rise with the firm poised to expend "substantial financial resources" on everything from technology infrastructure to retaining talented employees.

Where the numbers are not disconcerting, they are simply odd. A key metric that Twitter uses is one that it came up with itself, called advertising revenue per 1,000 timeline views, as opposed to the commonly used average revenue per user benchmark.

On that Twitter-defined front, the numbers are improving, from 63 US cents in the first quarter of last year to 80 US cents in the second quarter of this year.

For all its reliance on expression, Twitter owes its fortunes to tight-lipped international moneymen of mystery.

There is Russian billionaire Yuri Milner whose investment vehicle DST Global is linked to principal stockholders in Twitter's document, owning a stake of at least 5 per cent. Here is a man who does not put his mouth where his money is - a Forbes interview with him in 2011 said that the low-key Mr Milner "never tweets".

Then, there is India-born financier Suhail Rizvi, whose private equity firm Rizvi Traverse is also linked to principal holders of Twitter stock. So private a man is Mr Rizvi that he has employed someone to take down his Wikipedia entry and scrub the Internet of his image. He most certainly does not Tweet.

Rare image

One of the rare images of Mr Rizvi on the Internet shows him hunkered down at a coffee table in New York's Plaza Hotel with Twitter's management and Saudi Arabia's Prince Alwaleed, whose investment firm paid US$300 million for a piece of Twitter in 2011.

While these men come from disparate parts of the world, the Silicon Valley bounty tends to slosh about in the same tank.

Last year, Mr Rizvi led a US$200 million investment in Square, another company started by Twitter's Mr Dorsey. After that, Mr Rizvi helped to raise US$50 million for Flipboard, whose founder once sat on Twitter's board.

Both Mr Rizvi and Mr Milner managed to get coveted stakes in Facebook, pre-IPO, while Matt Cohler - famously Facebook's seventh employee - had a stake in Facebook that was reportedly worth US$680 million at its IPO. Mr Cohler is now a partner at Benchmark Capital, which - what do you know - is also a principal holder of Twitter stock.

While the circulation of money has remained the same, other things change. Since Mr Milner's 2011 Forbes interview, the Russian oligarch might have softened his no-Tweeting stance.

On Twitter, there are now two Yuri Milners. One account has just six Tweets in Russian from 2012 and another has just one Tweet. Posted in January this year, it perhaps foreshadows the Twitter IPO for Mr Milner et al.

It simply says: "$$$ 2013 $$$"

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