It was inevitable. Twitter has finally filed to go public, according to a Tweet from the company yesterday.
We’ve confidentially submitted an S-1 to the SEC for a planned IPO. This Tweet does not constitute an offer of any securities for sale.
— Twitter (@twitter) September 12, 2013
According to the Journal, Twitter could go public as early as this year. With LinkedIn shares rising more than 150% since the company went public in 2011 and Facebook Inc (NASDAQ:FB)‘s shares now trading above their IPO price last year, it’s an excellent time for the company to go public. But will Twitter be an excellent investment? Probably not — or at least not until it proves itself.
Source: Twitter.
So, at this point, there’s still very little investors know about Twitter’s financials — except that the company has less than $1 billion in annual revenue. But this fact is no surprise. According to estimates from eMarketer, Twitter will earn $582.8 million in global ad revenue this year.
Twitter’s IPO
When Twitter filed to go public, it took advantage of the new Jumpstart Our Business Startups Act, or JOBS Act. The Act allows a company to initially file IPO paperwork confidentially. One of the requirements is that the company must have less than $1 billion in annual revenue.
Beyond the current excitement for social networking stocks like Facebook Inc (NASDAQ:FB) and LinkedIn, Twitter’s recent growth should paint a nice backdrop for an IPO, too. If eMarketer’s estimates are correct, Twitter will have bragging rights to some impressive growth metrics. eMarketer estimates that Twitter’s 2013 revenue will more than double its 2012 revenue. Even more, eMarketer estimates that 53% of Twitter’s ad revenue “will come from mobile this year, up from virtually no ad revenue form mobile in 2011.”
Fortunately, we’ll eventually get more details. According to the Journal, the JOBS Act stipulates that companies must make their filing public 21 days before they start actively shopping the IPO to investors in order to price the deal.
Looming uncertainties
The problem with young companies is that they’ve had little time to prove their enduring characteristics — especially young companies right after their IPO. Of course this doesn’t mean that investors should rule out every IPO; after some due diligence, investors may discover that even a young, recently IPO’d company may possess enduring characteristics that make the stock worth considering.
But, already, there are definite uncertainties looming over the stock. Here are three big ones:
Twitter only has 200 million monthly active users
According to the company’s last progress update on its size, the company reported 200 million monthly active users (MAUs). I say only because that’s just 50 million more than one of its competitors: Facebook Inc (NASDAQ:FB)’s Instagram. Sure, Instagram is a photo-sharing app. But the lines between Instagram and Twitter are beginning to blur. And to make competition even tougher, Instagram just told the Journal that it plans to begin selling ads on its platform within the year.
Even more, 200 million MAUs is paltry number compared to Facebook Inc (NASDAQ:FB)’s 1.15 billion MAUs. And what about Twitter’s daily active users, or DAUs? Facebook boasts a whopping 699 million DAUs. Sure, Twitter benefits from a network effect. But Facebook’s 699 million DAUs is definitely a threat to the microblogging site.
Facebook is adding Twitter-like features
Media and press tools for surfacing conversations, hashtags, and “trending” notifications — Facebook Inc (NASDAQ:FB) is actively implementing new features to become more like Twitter. Questions loom: How far will Facebook go in its effort to implement Twitter-like features? Could Facebook undermine Twitter’s network effect?
