Twitter Inc, racing toward the largest Silicon Valley IPO since Facebook Inc's 2012 coming-out party, hopes to woo investors with rip-roaring revenue growth despite having posted big losses over the past three years.
The eight-year-old online messaging service gave potential investors their first glance at its financials on Thursday when it publicly filed its IPO documents, setting the stage for one of the most-anticipated debuts in over a year.
Twitter's debut will be the culmination of its journey from a side-project to a sociocultural phenomenon, one that has become a communications channel for everyone from the Pope to President Barack Obama. Last month, Iranian President Hassan Rouhani used Twitter to disclose a "historic" phone conversation with the U.S. President.
The service's emphasis on real-time communication - whether it be about breaking news or chatting with friends about a TV show on air - sets it apart from rivals such as Facebook.
Now, though, the company must prove to Wall Street it can continue to make money, even as growth slows after a period of explosive expansion around the world.
In Thursday's filing, the first public disclosure of financial figures, Twitter reported that revenue almost tripled to $316.9 million in 2012. In the first half of 2013, it posted revenue of $253.6 million but had a loss of $69.3 million.
The numbers were mostly in line with the estimates of outside analysts. The company began selling advertising in earnest only in 2010, devising a means for ads to appear in the message streams of users that has proven effective for both desktop computers and mobile devices.
The losses are "a non-issue," said Brian Wieser, analyst at Pivotal Research Group. "It would have been a surprise if they had a profit."
In the laundry list of risk factors that's typically appended to all company IPO filings, Twitter warned it was heavily reliant on advertising revenue. It said more than 87 per cent of its revenue came from advertising in the first half of 2013.
The prices Twitter can command for ads has actually fallen over the past five quarters. But the company said that decline was the result of a conscious effort to rapidly expand its available inventory and change its algorithms to distribute ads more frequently throughout each day.
Revenue has risen because the strategy attracted more advertisers, especially small- and medium-sized businesses and international clients, it said.
Still, the company acknowledged the uncertainty of the volatile and highly competitive online advertising market.
"Advertisers will not continue to do business with us, or they will reduce the prices they are willing to pay to advertise with us, if we do not deliver ads in an effective manner, or if they do not believe that their investment in advertising with us will generate a competitive return relative to alternatives, including online, mobile."
Twitter's target is to raise $1 billion, a figure devised mainly for registration purposes and that will change as the company embarks on a roadshow to sell its IPO to investors.
Assuming everything goes smoothly, it could begin trading in November, though it has not revealed which U.S. exchange -- the New York Stock Exchange or the Nasdaq -- it has chosen.
Wherever it lists, its debut is likely to cause waves across Wall Street and the industry, potentially breathing new life into the market for consumer Internet companies and influencing the value of all social media companies.
Some analysts estimate Twitter could be worth as much as $15 billion. That's a fraction what Facebook was worth at the time of its debut, but Twitter's profile is just as high.
Indeed, its more established rival is borrowing a few pages from Twitter's book, particularly in its approach to mobile advertising. On Thursday it announced an advertising initiative for its Instagram unit, which competes most directly with Twitter.
Since Twitter was spun out of a struggling San Francisco startup in 2006, it has grown to approximately 2,000 employees based in 15 offices around the world. Along the way, it helped create new ways for advertisers and corporations to reach audiences, from a "promoted tweets" model now replicated by Facebook and other Internet platforms, to its "second screen" approach to encouraging real-time debate around television programs.
More importantly, it has helped redefine the nature of global communications, linking once lofty and unreachable politicians, celebrities and journalists with millions around the world.
Its staunch advocacy of free speech around the world - nothing other than direct personal threats are barred from Twitter - has helped it become an important avenue through which news and viewpoints are shared, from the first inklings of the U.S. military assault on Osama bin Laden's compound to Obama's tweeting "Four more years" when he won re-election.
Twitter's IPO has already drawn multiple comparisons to Facebook. When the world's largest social network debuted, concerns centered around its inability to fully earn revenue off mobile users.
Twitter appears to have less of an issue with mobile. About 65 per cent of its revenue derives from mobile users, it said.
The service had 218.3 million monthly active users, on average, in the three months ended June 30. Three-quarters of its monthly active users are considered mobile users, it said in the filing.
But Twitter managed only average revenue per user in the second quarter of 2013 of 64 cents compared to Facebook's roughly $1.60, according to Reuters' calculations.
Investors can still muster some cheer from Facebook's revenue and profitability track. The social networking site pulled in $272 million in revenue in 2008 but lost $55 million, according to Facebook's S-1 document. In 2009, it swung to a profit of $262 million after increasing its revenue nearly three-fold to $777 million. Facebook is now solidly profitable.
Twitter, which went through a period of management turmoil and internal strife in its early years, did not append a letter from the founders to the filing, unlike Internet companies such as Facebook and Google before it.
Co-founder and former CEO Evan Williams is Twitter's largest shareholder, with 12 per cent of the shares, while co-founder and chairman Jack Dorsey owns 4.9 per cent. Biz Williams, another co-founder, does not appear on the list of top shareholders. Current CEO Costolo owns 1.6 per cent.
Among institutions, Benchmark and affiliated entities own 6.7 per cent of shares, while Rizvi Traverse Management, Spark Capital, Union Square Ventures and DST Global are each shareholders of 5 per cent or more.
Suhail Rizvi, the little-known head of Rizvi Traverse who has helped himself and his investors amass stakes in Twitter since 2011, would count among the largest institutional shareholders, according to sources familiar with its investments.
Twitter intends to list common stock under the symbol "TWTR." Goldman Sachs, Morgan Stanley, JPMorgan, BofA Merrill Lynch, Allen & Co, Deutsche Bank Securities and Code Advisors are managing Twitter's IPO.
Twitter: from side project to sociocultural sensation
Twitter, the 140-character messaging service favored by everyone from the Pope to U.S. President Barack Obama, began as a side-project but rapidly morphed into one of the most powerful social and cultural media forces of our time.
After eight years of explosive user growth marred by persistent technical challenges and management shake-ups, Twitter is now preparing to go public in Silicon Valley's largest initial public offering since Facebook Inc's last year.
March 21, 2006: Co-founder Jack Dorsey sends the first tweet: "just setting up my twttr."
Twitter is a side project within Odeo, a struggling podcasting company where Dorsey worked as a software engineer alongside Twitter co-creators Noah Glass and Biz Stone. The length of tweets are capped at 140 characters in order to include a user's name and still fit within the 160-character SMS messaging format used by mobile phones.
October 25, 2006: Evan Williams, CEO of Odeo, forms a company called Obvious Corp, which acquires all of Odeo's assets, including Twitter.
March 2007: Twitter stages a big promotion at the South by Southwest conference in Austin, Texas, lining the hallways with flat-screen panels that display a constant stream of Twitter messages. The service gains a loyal following among influential bloggers and tech enthusiasts that will prove key to its future growth.
April 2007: Twitter is spun out as a separate company, with co-founders Dorsey, Williams and Biz Stone. Dorsey is appointed CEO.
March 2008: Twitter has 1.3 million users, according to media reports at the time.
October 2008: Williams replaces Dorsey as Twitter CEO. Dorsey, who becomes Twitter Chairman but is no longer a Twitter employee, later recalls in Vanity Fair magazine that it felt like he was "punched in the stomach."
November 2008: Twitter rebuffs a $500 million acquisition offer by social networking powerhouse Facebook, according to media reports. Twitter has about six million registered users around this time.
April 2009: Oprah Winfrey joins Twitter. Ashton Kutcher becomes first celebrity to amass 1 million followers on Twitter. Twitter's total number of registered users reached 14 million the previous month.
June 2009: The U.S. State Department asks Twitter to delay a planned upgrade to its system that would have cut daytime service in Iran. The State Department stresses Twitter's importance as a communications tool during protests following Iran's disputed presidential election.
That request drove home Twitter's growing clout as a communications tool, with global political ramifications.
September 2009: Twitter raises $100 million in funding, in a deal that values the company at $1 billion. Dick Costolo, a former comedy-improvisational actor who later worked at Google Inc, joins Twitter as Chief Operating Officer. Starts new job by tweeting: "Task #1: undermine CEO, consolidate power."
April 2010: Twitter announces test of "promoted tweets," its first advertising product, with six advertising partners including Starbucks and Virgin America. Twitter says it has 105 million registered users and is adding 300,000 new users a day.
October 2010: Costolo replaces Williams as CEO. Williams says he will focus on product strategy.
September 2011: Twitter expands advertising service, letting marketers show a brand's promoted tweets to all Twitter users rather than only to Twitter users who follow the particular brand.
December 2011: Saudi Prince Alwaleed bin Talal buys a $300 million stake in Twitter by purchasing shares from existing investors; Company is valued at roughly $8 billion at the time.
December 2012: Twitter reaches 200 million monthly users.
September 12, 2013: Twitter announces it has filed for an initial public offering.
October 3, 2013: Twitter public files its S-1 statement, giving investors their first view of the company's financials and other key details.