Twitter IPO: what you should know before buying stock

Twitter is that little step closer to listing, with documents released yesterday.

The filings reveal that the social network has 218.3-million active monthly users churning out 500-million tweets a day. It has 49-million active users in the US and 169-million international users (everyone else in other words).

And as it says, since the beginning of the business, over 300-billion tweets have been created since the 21st of March 2006 when Jack Dorsey tweeted “just setting up my twttr”. And if ever you wanted to know what Twitter is (a lot of people still do not understand it), here is its description in the filing documents:

Twitter is a global platform for public self-expression and conversation in real-time. By developing a fundamentally new way for people to create, distribute and discover content, we have democratized content creation and distribution, enabling any voice to echo around the world instantly and unfiltered.

A little later in the listing document, management explains what the company is and this is what makes it different:

Twitter is a global platform for public self-expression and conversation in real-time. Our platform is unique in its simplicity: Tweets are limited to 140 characters of text. This constraint makes it easy for anyone to quickly create, distribute and discover content that is consistent across our platform and optimized for mobile devices. As a result, Tweets drive a high velocity of information exchange that makes Twitter uniquely “live”.

Perhaps it should have added to that last sentence of the first description “sometimes to the detriment of the Tweeter, which leaves them embarrassed as a result of their ill thought through Tweet”.

Okay, but Twitter points out the evolution of content creation, distribution and discovery is as follows: web browsers and then web portals, which then evolved to search engines and then through to social networks, of which it is a part of, now.

The only other social network that gets a mention is Facebook. We know how important Twitter can be to breaking news, because it has users everywhere, which quite clearly traditional media networks cannot. Vine is its six second video service. 140 characters and six seconds of videos. That is it. And that is the beauty of it all.

But more importantly, if you want to own this company, you must realise that it is an advertising platform. Twitter details its “value proposition to advertisers” in the IPO document.

They are the same sort of propositions that Facebook put forward, targeting (knowing about you and what you post and follow, and so on), as well as making sure the folks advertising get value for money by pay-per-click.

What do you need to know here? Well, it is raising US$1 billion. Annual revenue has risen tenfold from 2010 to 2012. Costs are up threefold in that time. Losses for the last three years were around US$270-million. So the business makes a loss, but less so last year.

But early investors have been keen to invest in the business, it has US$164-million in cash and cash equivalents. But the business as you can clearly see is growing at a breakneck speed, the staff compliment has gone from 200 to 2 000 in just over 40 months, meaning obviously the company had to skill up.

Who are the existing shareholders? Well, for starters (or enders) the number of shares in issue post the IPO will be 472 613 753.

DST Global (the same shareholders associated with Mail.ru, the business that Naspers has a nearly 30% stake in) has 12 427 273 shares. But bigger still, Evan Williams, a vegetarian from San Francisco and early Twitter investor owns 56 909 847 shares, or 12% of the company. Wow. the aforementioned Jack Dorsey, one of the founders, owns 4.9% of the business. CEO Dick Costolo (a buff and healthy 50-year-old from San Francisco) meanwhile owns 1.6% of the business. Bear in mind though that this is all BEFORE the offering, so these guys will be diluted.

What is the price? Well, the last price was over US$20 a share. Guessing out loud here, I suspect that after the seas settle, between 40 to 45-million new shares will be issued at between US$23 and US$26. #Justguessing. It may be a lot more.

The company hopes to list before Thanksgiving, which is the third Thursday in November, right?

If you believe that people will continue to adopt smartphones and continue to disseminate information for both fun and newsworthiness, then Twitter will continue to grow quickly. But then again, who knows?

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This article by Sasha Naryshkyine is adapted from the Vestact newsletter and republished with permission.