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Based in San Francisco, CA, Twitter (NYSE:TWTR) originally scheduled a $1.3 billion IPO with a market capitalization of $12.8 million at a price range midpoint of $18.50 for Thursday, November 7, 2013.

Since then TWTR raised its range to $23-$25, and then priced at $26, to raise $1.8 billion at a $14.2 billion non-diluted market capitalization.

TWTR is one of 13 operating company IPOs scheduled for this week. The full IPO calendar can be found at IPOpremium.

S-1 filed October 24, 2013

Manager, Joint managers: Goldman Sachs, Morgan Stanley, J.P. Morgan, BofA Merrill Lynch and Deutsche Bank

Co-Managers: Allen & Company/ CODE Advisors


Twitter is a global platform for public self-expression and conversation in real time. By developing a fundamentally new way for people to create, distribute and discover content, TWTR has democratized content creation and distribution, enabling any voice to echo around the world instantly and unfiltered.


. 230 million monthly average users (MAUs), 23% in the US, 77% international
. 76% of users access on a mobile device
. 71% of ad rev from mobile
. In road show said 'less than 10% penetrated across the globe'

Source: TWTR road show

TWTR anticipates

. Gross margins in the high 70% range, up from the 63% range.
. Adjusted EBITDA margins around 35-40%, up from adjusted EBITDA of 7% for the nine months ended September 2013.

. Returns improving from television, self-service advertising and international expansion.

Analysts projections

"The analysts see Twitter's revenue rising 98% to about $628 million this year, one investor said. The analysts expect Twitter's revenue to rise 54% to $966 million in 2014 and 31% to $1.26 billion in 2015, the person said."

Source: Bank of America (a lead underwriter) held a conference call led by Internet analyst Justin Post with investors to discuss Twitter Monday morning, October 28, according to investors who listened to the call, report in the WSJ.


Valuation RatiosMrktPrice /Price /Price /Price /Gross
annualizing Sept 3 mosCap (MM)SlsErngsBkVlueTanBVProfit %
. Non-diluted = 565mm shrs
. Fully diluted = 700mm shares
Original price range mid-pt
TWTR@-fully diluted$12,95019.6-49.86.5
Facebook (NASDAQ:FB)$126,00016.568.010.211.774%
LinkedIn (NYSE:LNKD)$26,98017.5160.624.329.386%
Upwardly revised price range & prices
TWTR@24 fully diluted$16,80025.5-64.67.3
Priced @$26
TWTR@26-fully diluted$18,20027.6-70.07.4
TWTR-fully diluted$24,50037.1-94.110.0
TWTR-fully diluted$28,00042.4-107.711.4
Valuation RatiosMrktPrice /Price /Price /
annualizing Sept 3 mosCapSlsErngsBkVlue

Accumulated deficit of -$868 million.



Buy TWTR on the IPO. In the aftermarket, however, remember that all social networking stocks made a short-term peak in the first hour or so, including LNKD. Some made it back & some didn't.

Income statement

. Expected sales growth year-over-year of 54% for 2014, 31% for 2015, both of which we believe are conservative.

. Target gross margin expansion to high 70s% from 63%

. Anticipated EBITDA expansion from 7% to 35-40%

. The street expects the loss % of sales to decline to -1.7% (almost breakeven) for 2015, down from expected 5.6% in 2014, down from -39% for the September '13 quarter.

Notice the comparative ratios based on the initial price range mid-point of $18.50. It's easy to see how TWTR was undervalued at $18.50.

. Price-to-book 50% of Facebook, 20% of LinkedIn

. Price-to-sales 17% less than FB or LNKD

. Price- to (conservatively estimated)-2015 sales of 8, and almost breakeven

Increased revenue stream

TWTR now has 3 main revenue streams, with 8 more in process & coming on line. See below.

The general investment community, and the public for sure, doesn't really understand TWTR and the revenue model.

This means there is room for the stock to increase as TWTR hits their milestones and the TWTR story becomes better understood.

General comment

The 8 new drivers are kind of in the filing, but they are lost in the enormity & scope of the filing.

Facebook & Google are trying to & will compete, along with several others. I personally am impressed, however, with TWTR's 8 new revenue drivers.

Facebook finally got around to monetizing its user base, which isn't increasing very much, and the stock really took off from $18 to $50.

TWTR's top line revenue has the potential to increase similarly without a huge expansion in the user base, which will still show incremental expansion.

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above:


Twitter is a global platform for public self-expression and conversation in real time. By developing a fundamentally new way for people to create, distribute and discover content, TWTR has democratized content creation and distribution, enabling any voice to echo around the world instantly and unfiltered.

TWTR's platform is unique in its simplicity: Tweets are limited to 140 characters of text. This constraint makes it easy for anyone to quickly create, distribute and discover content that is consistent across TWTR's platform and optimized for mobile devices. As a result, Tweets drive a high velocity of information exchange that makes Twitter uniquely "live." TWTR aims to become an indispensable daily companion to live human experiences.

TWTR has already achieved significant global scale, and continues to grow. TWTR has more than 230 million monthly active users, or MAUs, and more than 100 million daily active users, spanning nearly every country. Its users include millions of people from around the world, as well as influential individuals and organizations, such as world leaders, government officials, celebrities, athletes, journalists, sports teams, media outlets and brands. TWTR's users create approximately 500 million Tweets every day.

Public real-time platform

Twitter is a public, real-time platform where any user can create a Tweet and any user can follow other users.

TWTR does not impose restrictions on whom a user can follow, which greatly enhances the breadth and depth of available content and allows users to discover the content they care about most.

Additionally, users can be followed by thousands or millions of other users without requiring a reciprocal relationship, enhancing the ability of TWTR's users to reach a broad audience.

The public nature of TWTR's platform allows it and others to extend the reach of Twitter content beyond its properties. Media outlets distribute Tweets beyond TWTR's properties to complement their content by making it more timely, relevant and comprehensive. Tweets have appeared on over one million third-party websites, and in the third quarter of 2013 there were 48 billion online impressions of Tweets off of TWTR's properties.

Revenue model

Currently three main revenue drivers

. Promoted Tweets.

. Promoted Accounts & Promoted Trends. Those ads sit at the top of your Twitter timeline or Trends list. Companies pay for them to be there.

Eight new revenue drivers not talked about much in the SEC filing

1. Self-serve ads in international markets. Now, small and medium sized business that want to advertise directly on Twitter can only do so in the U.S. Twitter access for international small and medium sized businesses has not yet been rolled out.

2. Twitter's 6-second video app, Vine, was launched in 2013 but none of the "inventory" from the millions of videos it plays to people every week has been yet monetized. In the future, companies will be able to promote ads on Vine.

3. Big Data: In the first half of 2013, Twitter made $32 million in revenue from "data licensing." Twitter lets analytics companies have access to the information coming from its user base. Twitter expects this revenue stream to grow in absolute dollars but to decline as a percentage of revenues.

In the long run, however, Twitter's data could potentially become more interesting than its ad operations, as the applications for data are endless whereas the applications for promoted tweets are not. Here's one unusual use: Investment company Dataminr analyzes tweets for Wall Street and can give investors a five-minute head start on the mainstream media when big news breaks.

4. Mobile advertising outside the Twitter ecosystem: Twitter announced the impending acquisition of mobile ad company MoPub on Sept. 9. MoPub could potentially give Twitter the ability to run ads on other companies' mobile apps, using Twitter data as a targeting mechanism.

5. Real-time bidding on ads inside Twitter: Twitter's MoPub unit is also able to build an real time bidding marketplace inside Twitter, which would allow advertisers to bid on users as they arrive in the system.

6. TV Ad Targeting: Twitter launched its TV ad targeting product in May; that product enhances the value of TV advertising by simultaneously triggering chatter on Twitter. The success of this product has yet to hit Twitter's quarterly numbers.

7. Amplify: Amplify is Twitter's current video ad product. Amplify lets video media companies - like TV networks - add preroll ads from their sponsors to viral videos (sports highlights and such), and promote that in tweets. This product launched in May that has yet to fully hit Twitter's books. CBS is one client.

8. Custom Audiences: Twitter is developing a custom audience product, like Facebook's, which allows advertisers to run ads targeting lists of their own users, and compare them with control groups who didn't see the ads.

The difference in sales that results from the two campaigns lets advertisers know how well their ads worked. Twitter's Custom Audience product is in beta testing right now.

Source for 1-8 above: Business Insider

Intellectual property

As of September 30, 2013, TWTR had 9 issued patents and 95 filed patent applications in the United States and foreign countries relating to message distribution, graphical user interfaces, security and related technologies. TWTR's issued United States patents are expected to expire between 2029 and 2031.


TWTR competes against many companies to attract and engage users, including companies which have greater financial resources and substantially larger user bases, such as Facebook (including Instagram), Google, LinkedIn, Microsoft and Yahoo!, which offer a variety of Internet and mobile device-based products, services and content.

For example, Facebook operates a social networking site with significantly more users than Twitter and has been introducing features similar to those of Twitter.

In addition, Google may use its strong position in one or more markets to gain a competitive advantage over TWTR in areas in which TWTR operates, including by integrating competing features into products or services they control.

As a result, TWTR's competitors may acquire and engage users at the expense of the growth or engagement of TWTR's user base, which would negatively affect TWTR's business.

TWTR also competes against smaller companies, such as Sina Weibo, LINE and Kakao, each of which is based in Asia.

5% stockholders

Entities affiliated with Rizvi Traverse 17.9%

Entities affiliated with J.P. Morgan 10.3%

Entities affiliated with Spark Capital 6.8%

Benchmark Capital Partners VI, L.P. 6.6%

Entities affiliated with Union Square Ventures 5.9%

Entities affiliated with DST Global 5.0%

Use of proceeds

TWTR expects to net $1.3 billion from its IPO.

Proceeds are allocated to capital, operating expenses and capital expenditures.

TWTR anticipates making capital expenditures in 2013 of approximately $215 million to $235 million, and TWTR may use a portion of the net proceeds to fund its anticipated capital expenditures.

TWTR also may use a portion of the net proceeds to satisfy its anticipated tax withholding and remittance obligations related to the settlement of its outstanding Pre-2013 RSUs, or TWTR may choose to allow its employees who are not executive officers holding such awards to sell shares of its common stock in the public market to satisfy them. TWTR also may use a portion of the net proceeds to satisfy its anticipated tax withholding and remittance obligations related to the settlement of its outstanding Pre-2013 RSUs, or TWTR may choose to allow its employees who are not executive officers holding such awards to sell shares of its common stock in the public market to satisfy their income tax obligations related to the vesting and settlement of such awards.

Disclaimer: This TWTR IPO report is based on a reading and analysis of TWTR's S-1 filing, which can be found here, and a separate, independent analysis by There are no unattributed direct quotes in this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Source: IPO Preview: Twitter