6 Things You Need to Know About Twitter's IPO

Investors have been anxiously waiting to get their hands on Twitter's juicy financial details ever since the company very publicly tweeted about its confidential S-1 filing. Yesterday evening, Twitter satisfied investors by making its registration statement public for all to see.

Twitter is seeking to raise upwards of $1 billion through its offering, and will trade under the ticker symbol TWTR. The company has not decided which exchange it will list on. The bungled Facebook IPO is a fresh wound for Nasdaq OMX, but Twitter is certainly negotiating with both the NYSE and Nasdaq.

This is the first time that public investors have gotten a chance to glean fundamental details, and comparisons to Facebook (NASDAQ: FB  ) will inevitably ensue. Here are the six things you need to know about Twitter's upcoming IPO. 

1. Twitter is much smaller than Facebook
Earlier this year, Twitter shared on its official blog that it had over 200 million monthly active users, or MAUs. That figure stood at 218 million worldwide at the end of June. Only 49 million of these MAUs are located in the U.S., with the remaining 169 million abroad. Over the past 12 months, Twitter has generated $448.2 million revenue and has yet to turn a profit.

Source: Twitter S-1.

Compare those figures to Facebook. When Facebook filed its initial S-1, it had 845 million worldwide MAUs and had generated $3.7 billion in TTM revenue. These statistics rose further by the time Facebook went public several months later, since another quarter closed in the meantime.

Twitter recently valued itself at $9.7 billion, well below the $104 billion valuation that Facebook fetched at its public debut. By any measure, Facebook is still significantly larger than its tweeting rival.

2. Say hello to the newest monetization metric
Instead of using a commonly accepted monetization metric like average revenue per user, or ARPU, Twitter has devised its own company-specific metric. Twitter measures user engagement by Timeline Views, and subsequently measures ad revenue per 1,000 Timeline Views.

Source: Twitter S-1.

Twitter generated $2.17 per 1,000 Timeline Views in the U.S., but just $0.30 per 1,000 Timeline Views internationally, meaning that domestic monetization is over seven times as strong. That's similar to Facebook's dynamics, as its North American ARPU was over six times higher than in its Rest of World segment.

Since Twitter and Facebook use different methodologies to measure monetization, the figures are not directly comparable. However, investors can still see similar patterns playing out since both businesses are built on monetizing large user bases through advertising.

3. Mobile is already rocking
You may have heard this by now, but Facebook is now crushing it on mobile. That's a direct contrast to the accepted storyline from 2012 that Facebook's mobile future was fraught with risks. Twitter won't have to worry about similar investor skepticism, since the majority of revenue is already derived from mobile devices.

Last quarter, 75% of MAUs accessed the service from a mobile device, and over 65% of advertising revenue was generated from mobile devices. That means that 56% of total revenue is already coming from mobile sources. All of these metrics should continue upward.

4. Twitter is already up 58% since last January
Like many private companies, Twitter values itself based on third-party valuations, recent private transactions, comparable public companies, and future projections, among other things.

Twitter then uses these valuations for things like restricted stock unit, or RSU, grants. In the filing, Twitter provides a brief history of its value per share starting in January 2012, when it valued itself at $13.05. So far so good.

Source: Twitter S-1.

The most recent valuation was about a month ago when Twitter pegged its share price at $20.62. Since this is just the first version of the S-1 that will inevitably get amended, it has not yet specified a pricing range.

5. Twitter has a side gig
In addition to the core advertising business, Twitter also has a data-licensing business where it sells access to its historical and real-time public data. These licenses usually span two years. This is a relatively small business, and generated $58.7 million in sales over the past four quarters, or just 13% of total revenue. As the ad business grows much faster, data-licensing revenue continues to decline as a percentage of total revenue -- a trend that management expects to continue.

Source: Twitter S-1.

Additionally, this segment is highly concentrated among very few data partners. Twitter says that its top five data partners accounted for 75% of data licensing revenue, which translated into around 10% of total sales.

6. Dick Costolo now makes less than minimum wage
Last year, CEO Dick Costolo's cash salary was $200,000, but his annual salary was dropped in August to just $14,000. That comes out to just $6.73 per hour, or less than the $7.25 federal minimum wage.

Of course, the bulk of Costolo's overall compensation is in the form of equity. In 2012, he brought home $11.3 million in stock and option awards. Costolo is also the proud owner of nearly 7.6 million shares, or 1.6% of the company before the offering.

Costolo certainly isn't the only executive in the world of tech with a nominal cash salary. The timing of the change does suggest that Costolo took the pay cut in advance of going public, and investors generally do like when executives' interests are aligned with their own through equity compensation (assuming grants aren't overly generous).

Don't worry about Costolo's pay too much.

There's more where that came from
The S-1 is packed full of even more information. These are just some of the primary highlights for investors to start digesting. If there's one thing that Facebook has proven this year, it's that mobile advertising within social content feeds can be an extremely successful business.

Twitter is still young as a business, and as such could potentially represent greater upside than Facebook if Twitter can grow to the same levels. At this point, there's one final unknown for investors before they could truly assess Twitter as a stock: Where will Twitter price?

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Read/Post Comments (5) | Recommend This Article (34)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 05, 2013, at 7:40 AM, Vocstar wrote:

    what about the gov shutdown

  • Report this Comment On October 05, 2013, at 8:42 AM, efbeau wrote:

    Help me out here, I am confused. Twitter has been around for about ten years? The article states Twitter earned $448.2 mil but has never turned a profit? The company officers I'm sure collect a hefty salary plus workers have to get paid. If the company earns $448.2 mil and is still in the hole how does it survive, fancy accounting burying the real figures or a big benefactor?

    The other thing is overhead, how much can it have? One building( not very large) having a bank of servers and some offices for personnel. That's the only brick and mortar I can think off. Yes salaries, insurance, taxes. What am I missing basically Twitter collects advertisement revenue and has a room full of servers.

  • Report this Comment On October 05, 2013, at 12:27 PM, seagull2912 wrote:

    efbeau,

    Some questions a better than answers:

    My guess that the compony who are borrowing heavily, geting the money from the investors.

    I guess they have a very interesting preipo live, which is truly resulted the popularity and staging them for the IPO.

    I am defiantly not the one, who can answer your question, I am the one who can noted it.

    Yes the fools might speak the truth to the kings, but they are prone in my opinion to the "naked king syndrome" as the history of the money as well.

    Againe thank you for asking.

  • Report this Comment On October 05, 2013, at 12:50 PM, Mega wrote:

    efbeau

    Read the S1, it describes their expenses.

    TWTR is spending very heavily on R&D. It's not really clear why such high spending is required.

  • Report this Comment On October 07, 2013, at 12:50 AM, mikecart1 wrote:

    I'm buying Twitter. Not because I think it is a great business as I think it is like Facebook --> a long-term fad. But because so many casual investors will make this stock soar. At that point, I sell and continue using both Facebook and Twitter lol.

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