Twitter's IPO Risks Include Ads, Users and Financial Losses
As Twitter looks to convince investors its IPO is a good bet, analysts are studying the biggest challenges facing the company, like finding a path to profitability while fending off rivals like Facebook and Google.
Mon, October 07, 2013
In an S-1 filing with the U.S. Securities and Exchange Commission, the company listed about 55 business risks that were explained over a number of pages.
The company cited a wide range of factors, including a history of financial losses, the difficult task of continuing to grow its user base, the possibility of alienating users with advertising, Internet blockages in foreign countries and the threat of earthquakes.
Analysts say Twitter's list of potential obstacles is quite thorough, though the caution isn't surprising considering the troubles faced by Facebook after its tumultuous IPO last year.
"It's not all that unusual for companies to list a huge number of risks that might put investor's investments in jeopardy," said Dan Olds, an analyst at Gabriel Consulting Group. "It's a sign of today's litigious times that firms need to cover themselves by disclosing each and every tiny risk the company might face."
At the head of Twitter's list of "what-ifs" is concern about the company failing to continue its user growth rates or seeing a drop in user engagement.
"Our financial performance has been and will continue to be significantly determined by our success in growing the number of users and increasing their overall level of engagement on our platform as well as the number of ad engagements," the company said in the S-1 filing. "We anticipate that our user growth rate will slow over time as the size of our user base increases."
Twitter also noted its financial record of steady losses as a risk for investors.
"Since our inception, we have incurred significant operating losses, and, as of June 30, 2013, we had an accumulated deficit of $418.6 million," the filing said. "Although our revenue has grown rapidly, increasing from $28.3 million in 2010 to $316.9 million in 2012, we expect that our revenue growth rate will slow in the future as a result of a variety of factors, including the gradual slow down in the growth rate of our user base."
Jeff Kagan, an independent analyst, said Wall Street and industry analysts will be scrutinizing the potential problems.
"Investors want to make money, period," Kagan said. "Investors aren't in it to send tweets. If they can't make money with Twitter, they'll invest in something else.