WHAT WE LEARNED FROM THE IPO FILING: Twitter Has An Enormous Account Deficit And Might Never Turn A Profit


Twitter’s initial public offering filing was released this evening, according to BusinessWeek, and amidst the glitz and glam, a few tantalizing — although not completely surprising — facts jumped out at us:

1) Twitter is running a HUGE deficit: TechCrunch notes that the company has accumulated a $418.6 million deficit, which is likely to balloon to over $748 million after all IPO expenses have been incurred. The company has raised over $1.6 billion in venture capital.

Although it’s not unusual to be losing money at the time of an IPO — especially for a massively networked tech company — the sheer size of Twitter’s losses is raising eyebrows. For another comparison, Trulia had accumulated a $44 million deficit before going public last year, according to The San Francisco Business Times.

2) Twitter has a long way to go before figuring out an ideal advertising strategy: According to Bloomberg, three-quarters of Twitter users are outside the U.S., but international advertisers comprise only 25% of revenue. In emerging markets with more simplistic mobile phones — particularly India — opportunities to monetize the user base may come few and far between.

That said, Twitter seems to be extra-focused on pulling value out of its international consumers– the first two quarters of 2013 brought in $62.8 million in international revenue, more than all of 2012. Because 87% of Twitter’s revenue comes from advertising (the company is expected to pull in $655 million in total revenue this year), future ad innovation is crucial; USA Today reports that mobile ad exchange MoPub, which Twitter acquired for $350 million in September, will be crucial to the company’s overall performance.

The path to profitability, in other words, will not be a straight line.

3) Twitter knows that the ‘cool’ factor is its biggest strength, and biggest liability: The “Risk Factors” section of the S-1 Prospectus notes that a decline in use by “world leaders, government officials, celebrities, athletes, journalists, sports teams, media outlets and brands who generate content on Twitter” could lead to a precipitous drop in advertising interest.

4) Here’s who’s going to get really rich: According to Bloomberg, based on an expected $15 billion market capitalization:

-Evan van Williams, co-founder: $1.8 billion with 12% equity.

-Peter Fenton, board member: $1 billion with 6.7% equity.

-Jack Dorsey, co-founder: $735 million with 4.9% equity.

-Dick Costolo, CEO: $240 million with 1.6% equity.

-Rizvi Traverse, Spark Capital, Benchmark Capital Partners, Union Square Ventures and DST Global: At least $750 million with at least 5% equity each.