As Twitter prepares for the most-anticipated Internet IPO since Facebook, some observers say the microblog's ad growth prospects are better than those of No. 1 social network Facebook.
Twitter late Thursday announced, via tweet, that it's confidentially filed for an IPO, meaning it doesn't yet have to disclose financials. The initial public offering has been long awaited. Facebook (FB) went out in May 2012.
But Twitter's timing is much better than Facebook's, says an analyst, because mobile ads conveniently are just now emerging as a major revenue source for Internet companies, including Google (GOOG) and Yahoo (YHOO).
"It should benefit Twitter that they're coming out at a time when mobile adoption, broadly speaking, is seen by advertisers as better," Wedge Partners analyst Martin Pyykkonen told IBD.
And Pyykkonen is among those who say Twitter might be better suited to mobile ads than even Facebook.
Because Twitter has revealed scant financial data, Wall Street estimates on the company's total valuation range roughly between $10 billion and $20 billion. It has some 200 million registered users, while Facebook has more than 1 billion.
Facebook's stock famously tanked right after its IPO, largely when investors realized the most-used social network wasn't yet prepared to sell mobile ads. Valued at more than $100 billion at the start of the IPO, its valuation fell by more than half a year ago, and is now back above $100 billion.
Twitter won't have that same mobile ad problem.
Research firm eMarketer expects Twitter's total revenue to double this year to $583 million. It estimates that 53% of that revenue, or $309 million, will come from mobile ads.
In 2014, eMarketer forecasts $551 million in mobile ad revenue for Twitter, or 58% of its total revenue of about $950 million.
Facebook Faced Long Climb
Facebook just posted a big mobile-ad-revenue quarter in Q2, results that propelled its stock finally to rise above its offering and first-day-high prices. Facebook said its Q2 mobile ad revenue rose 75% in Q2 to $656 million from $375 million in Q1, a huge single-quarter jump. In Q2, mobile accounted for 41% of Facebook's total revenue, up from 30% in Q1.
Twitter and Facebook both target users with ads based on information their users have shared on the service, from location, gender and age to hobbies, field of employment and more.
But differences in the way users interact on the two networks seem to give Twitter an edge, says analyst Pyykkonen.
Facebook is a more "social focused" platform, where users mostly are following family and friends, he says. Twitter users, on the other hand, follow lots of news and brands. That can make it easier for advertisers to target a premium audience with pertinent ads, he says.
"Neither one is a perfect system for targeting," he said, "but in theory, Twitter should be more effective.
Ad networks could also be a big boost for both social networks, as they are for Google and Yahoo. Facebook is deep into developing such a network, which will let it sell ads outside the Facebook platform.
Similarly, Twitter on Sept. 9 agreed to acquire ad exchange MoPub for a reported $350 million, a deal that focuses on mobile ads and buying based on bidding.
"In particular, we think there is a key opportunity to extend many types of native advertising across the mobile ecosystem through the MoPub exchange," Kevin Weil, Twitter's vice president of revenue product, said in a blog post announcing that deal.
MoPub Acquisition Praised
MoPub will boost Twitter's profitability, Joe Kowan, practice lead of digital investment and activation at media agency MEC, told IBD via email.
The acquisition will let Twitter build out its mobile advertising business, Kowan says.
Another factor in ad sales is that Facebook is a closed network. Users have to register and sign in to view any of the site. Twitter's site is open to all, who can view any content that tweeters haven't made private. So, Twitter can serve ads to people who aren't even users.
Under a 2012 Securities and Exchange Commission rule, companies with less than $1 billion in annual revenue can choose to keep financial details private until three weeks prior to selling shares or starting a road show.
That San Francisco-based Twitter, founded seven years ago, has decided to go that route is not surprising.
Of the 27 tech IPOs that have raised some $3.88 billion this year, 88% have opted for a confidential filing, says PricewaterhouseCoopers.