From CEO Dick Costolo to Peter Chernin: Who Gets Rich in Twitter's IPO
This story first appeared in the Oct. 18 issue of The Hollywood Reporter magazine.
When President Obama won the 2012 U.S. presidential election, he first declared victory not on television but on Twitter.
That's one of Twitter's many boasts in a 200-page prospectus it filed Oct. 3 announcing its intention of an initial public offering, perhaps because it couldn't brag about profit -- the company lost $79.4 million in 2012 and another $69.3 million in the first half of this year. In fact, some analysts weren't even impressed with revenue: Even though sales skyrocketed more than 1,000 percent in two years, from $28.3 million in 2010 to $316.9 million in 2012, in the first half of 2013, revenue was $254 million, well below the $310 million that Wedbush analyst Michael Pachter had modeled.
Still, Twitter could go public as early as November and intends on trading under the symbol TWTR, though it hasn't disclosed on which stock market. It will sell about 10 percent of the company for $1 billion with its IPO, based on a $10 billion valuation of the entire enterprise. But many observers consider that $1 billon figure a placeholder that could change, and predict that by the time of the IPO, Twitter's value will be in the neighborhood of $12 billion to $15 billion.
That certainly would be welcome news for pre-IPO investors as well as the top executives who primarily are paid in equity. The biggest winner is co-founder and former CEO Evan Williams, whose stake will be worth at least $1.2 billion (even after Williams unloaded a portion of his share in 2010 to investor Suhail Rizvi, whose Rizvi Traverse now owns at least a 5 percent stake). Current CEO Dick Costolo's share will be worth north of $160 million, while board member Peter Chernin has been awarded $3.7 million in stock.
Twitter makes about 87 percent of its revenue through advertising, and some analysts say the company must address the geographic discrepancy between where most of its ad revenue comes from and where the majority of its users are based. Three-quarters of Twitter users live outside the U.S., yet overseas ad revenue accounted for less than 17 percent of the total last year. And Twitter acknowledges hefty competition from Facebook, though it also hints at efforts to create new products. Some analysts suspect longform video advertising is in the works.
The potential for Twitter to become an ad juggernaut certainly exists, given its 215 million worldwide users, who send out about 500 million tweets a day. That's nowhere near the 845 million active monthly users Facebook had when it went public in May 2012, but this is the metric that analysts presume will cause the Twitter IPO to be oversubscribed and the stock to initially pop (unlike the infamous $100 billion Facebook IPO, in which the size of the offering kept rising so that there were far more sellers than buyers at first).
"Our general impressions are positive on the company," Brian Wieser of Pivotal Research Group told clients after poring through the prospectus. "It has clearly established itself as one of the world's most important media properties and one which is increasingly important to advertisers, too."