Hot on the heels of Facebook’s rocky IPO, Twitter filed for its own offering yesterday, seeking to raise $1 billion and planning to trade under the ticker TWTR when the San Francisco company goes public. As a business still searching for dependable new revenue streams, Twitter faces important questions about how successful its IPO and future growth will be.
In the first half of 2013 the company reported $253.6 million in revenue, but it also recorded a net loss that grew 41% to $69.3 million. Those numbers spotlights the challenge: strong user engagement does not yet translate into comparable profits.
Still, there are two encouraging facts. First, only about one-third of Twitter’s users are in the United States, indicating substantial international growth potential. Second, roughly 65% of Twitter’s revenue comes from mobile advertising, a higher share than competitors such as Facebook and LinkedIn. That strong mobile performance positions Twitter well as advertising budgets continue shifting toward mobile platforms.
From the perspective of a regular social network user, however, Twitter faces a delicate balance with advertising. Facebook has become deeply embedded in many people’s daily lives and can tolerate bold, prominent ad formats without losing substantial user engagement. Twitter does not have that same margin for error. Changes to the user experience—especially if users perceive the platform as becoming overly commercial—could drive some people to alternatives.
That tension was evident when Twitter adjusted its API rules to better control the platform and secure future revenue. While those changes were likely necessary from a business standpoint, they also prompted some users and third-party developers to consider leaving or migrating. If Twitter expands advertising beyond the current promoted tweets model, it risks accelerating a move to niche services or specialized platforms.
Indeed, Twitter’s greatest vulnerability may be influential figures migrating to smaller, focused services—platforms tailored for world leaders, celebrities, athletes, or journalists—where audiences follow the creators rather than the hosting network. If prominent accounts depart, follower activity and broader public attention could shift away from Twitter over time.
Twitter’s first major product launched beyond—but integrated with—its main microblogging service is Vine, a short looping video app that has grown quickly in popularity. Brands and marketers have already started experimenting with Vine campaigns. As of now, however, Vine does not have a clear revenue model. With competitors like Instagram rolling out in-feed video and soon introducing ads, Twitter will likely be cautious about adding ads to Vine until it sees how the market and user sentiment evolve.
How much is each Twitter user worth? The company has not published a specific per-user valuation, but estimates from industry analysts put average revenue per user (ARPU) at about $0.55 for the quarter ending in June. By comparison, Facebook’s ARPU in the same period was roughly $1.41. The gap highlights how Twitter’s monetization still trails larger social platforms, even as engagement remains high.
Twitter can, however, point to impressive user activity: about 100 million people access the service every day and collectively post around 500 million tweets. That works out to an average of roughly five tweets per active user per day, underlining the platform’s position as a lively real-time public conversation space.
The IPO is expected to raise $1 billion, with significant proceeds benefiting early investors and founders. Ev Williams, a co-founder, holds about 12% of the company and stands to gain substantially. Other notable holders include investor Peter Fenton with about 6.7%, co-founder Jack Dorsey with around 4.9%, and CEO Dick Costolo with approximately 1.6%.
In summary, Twitter’s IPO marks an important inflection point. The company has strong global reach and mobile advertising performance, but it must continue improving monetization without alienating users. How Twitter expands revenue across products like Vine, balances ad load with user experience, and retains influential creators will shape its long-term prospects as a public company.
What do you think about Twitter’s growth and the prospects tied to its upcoming IPO?