Perils of chasing dollars ahead of Twitter IPO


The micro-blogging site Twitter’s share sale, which values the company at $US10 billion ($10.5 billion), will be the most eagerly anticipated in global tech circles since Facebook’s disappointing debut in February last year.

Experts said Twitter would need to tap new and existing ad revenue streams to keep new investors happy and ensure that early investors, along with its co-founders Evan Williams and Jack Dorsey, pocket the huge wealth to match the influence of their creation.

In filing for its initial public offering, Twitter showed it has been growing revenue, but making losses. Its revenue grew by three times in 2012 to hit $US317 million, but made a loss of $US79 million.

However the document also spelled out the sheer scope of the site’s influence.

It has more than 215 million monthly active users, generating approximately 500 million Tweets per day. Interestingly in the June quarter this year 75 per cent of users accessed Twitter on a mobile device, compared to 66 per cent a year earlier.

The founder of Melbourne-based technology venture fund Adventure Capital, ­Stuart Richardson, said the timing of Twitter’s IPO was better than Facebook’s, due to the sense that it is poised for further growth. “Twitter is likely to be more successful as they are mobile-centric with 75 per cent of usage and 65 per cent of revenue being driven by mobile. The reality is that Facebook is still playing catch-up in the mobile space. They only started mobile ads this year and are still working it out,” Mr Richardson said.

Unmet potential

Right Click Capital partner Benjamin Chong said he would be keen to invest in Twitter, as he believed the company was only just beginning to harness the potential of its business model.

He said the plummeting Facebook post-IPO stock price, which dropped to as low as $US17.58 from its IPO price of $US38, could be avoided at Twitter. Facebook has since recovered and sat at $49.18 at Thursday’s close, but Twitter and lead IPO advisers Goldman Sachs will be keen to avoid a similar roller-coaster ride.

“The key will be for Twitter to price its stock well; they’ll want to ensure that existing investors get a good return and IPO investors get an uplift from the listing price,” Mr Chong said.

“They will need to focus on top line growth; companies that have missed their forecasts have been punished by the market, so setting the right expectations and meeting/exceeding them are important . . . this means metrics like user engagement, sponsored tweets, and reliability, hold up.”

The IPO is likely to be a boon for ­Twitter’s founders and early investors.

Top beneficiary will be co-founder Evan Williams, with a 12 per cent stake, followed by venture capitalist Peter Fenton of Benchmark, who has 6.7 per cent. Co-founder and chairman Jack Dorsey will also make a bundle from his 4.9 pe cent holding, whereas chief executive Dick Costolo owns 1.6 per cent.

Successful commercial features

General manager at Aegis Media’s social media arm The Social Hatch, ­Kristen Boschma, said Twitter had so far successfully managed the introduction of commercial elements like promoted Tweets, accounts and trends.

However allowing adverts to become too intrusive would be a potentially fatal mistake. “No doubt Twitter will also look at increasing revenue through data-sharing costs and potentially increase the access cost for third parties such as Hootsuite. However it’s the focus on ad sales that will have users, media agencies and advertisers holding their breath,” Ms Boschma said.

“The pressure on Twitter to increase ad sales revenue will be enormous. The pressure to keep their user base happy at the same time is even higher.”


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