Breakout

Twitter IPO Guide: What to Know Before You Buy the Hype

Jeff Macke
Breakout

Christmas came early for Wall Street and investors as Twitter finally revealed the numbers behind the Tweets. The frenzy with which analysts and reporters tore into the data rivaled anything seen since the last Harry Potter book was released in 2007.

Even the most rabid financial analyst would concede the official Twitter IPO registration statement makes for slightly dry reading. To spare financial muggles the pain of going through the 180-page S-1 filing, here's a Cliffs Notes version of what investors need to know about the company as they gear up for the IPO expected sometime next month.

1. Twitter is selling $1 billion worth of stock in an IPO, which values the total company at $10 billion.

2. Facebook (FB) has a market cap of $123 billion, more than 12x the size of Twitter. For comparison's sake Google (GOOG) is worth $290 billion and online networking company LinkedIn (LNKD) has a market value of about $23 billion.

3. 75% of Twitter's active users sign in via smartphone or tablet.

4. Only 65% of Twitter's revenues come from mobile users. Mobile ads are worth less to advertisers than the those you see on your desktop. That's a problem for Twitter as more and more people go mobile.

5. Former CEO Eric Williams will be the biggest shareholder with a $1.2 billion stake. Twitter's 1,800 employees are about to get very wealthy. Co-founder Jack Dorsey's stake will be worth $470 million. Current CEO Dick Costolo has a relatively paltry stake worth an expected $160 million.

6. More than 200,000,000 people tweet. As of June 30th there were 49.2 million active Twitter users in the U.S. compared to 169 million in the rest of the world. Year-over-year Twitter was growing its user base at 35% at home compared to a 47% growth rate around the world.

7. Twitter users updated their timelines more than 170 billion times in the three months ending June 30th. For the sake of perspective there are only 7 billion people in the whole world.

8. Every time you update your timeline Twitter gets of $0.0008. U.S. users are more valuable to advertisers. Twitter gets $2.17 per 1,000 updates for U.S. residents compared to just $0.30 for international users. Analysts are going to want to see the company making much more off each of those groups once Twitter goes public.

9. Total revenues should be more than $600 million in 2013. $0.80 per 1,000 updates isn't much but it adds up. Revenues will be almost twice as much as the company booked in 2012. But...

10. Twitter loses a lot of money. The company is on pace to lose more than $140 million this year. On the plus side, the pace at which losses are growing is slower than its revenue expansion. Obviously that's not good enough for the long term but it's a step in the right direction.

What's it all mean? Eric Jackson, founder of Ironfire Capital, says he likes the look of the numbers overall but with a couple reservations. "My first impression was I was surprised," says Jackson in the attached video. "The user numbers were lower than I expected and the revenue numbers were lower." He expected something much closer to $1 billion. The number of users worldwide was less than half of what he expected.

Those concerns aside Jackson thinks Twitter's IPO is reasonably priced, especially compared to Facebook (FB). $10 billion is the starting value but he expects the company to be worth $12 billion to $15 billion once it comes public. Unlike Facebook, which infamously raised the size of its offering until the IPO flopped, Twitter is selling a relatively small slice of the company. At least for now.

Whatever the final price Jackson thinks investors are likely to end up ahead. "I think three or four years down the line this is a $40 to $60 billion company," he predicts. By Jackson's most conservative estimate, that's 2.7x bigger than what he thinks Twitter will be when it finally hits the market.

Finally he says to forget the talk of Twitter being a sign that another bubble is brewing in the IPO market. "This is the new utility!" he exclaims, adding that Twitter will be with us for at least another 20 years.

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