Twitter files IPO papers with SEC, hopes to raise $1B

SAN FRANCISCO -- Twitter has unsealed the documents for its planned initial public offering of stock and says it hopes to raise up to $1 billion in one of the year's most eagerly awaited stock market debuts.

The documents revealed for the first time how much money the social networking company makes. Founded in 2006, Twitter has never turned a profit and has an uninterrupted history of losses totaling $419 million since its inception. But its revenue is growing.

Twitter disclosed three weeks ago that it filed confidential papers to start the IPO process. The company was taking advantage of federal legislation passed last year that allows companies with less than $1 billion in revenue in its previous fiscal year to avoid submitting public IPO documents.

On Thursday, Twitter Inc. unsealed the papers with the Securities and Exchange Commission, giving potential investors and its users a look inside its business. Twitter was required to unseal its documents at least three weeks before it starts holding events around the country to woo potential investors. At this rate, the company will likely price its IPO by Thanksgiving.

According to the IPO filings, Twitter generated $317 million in revenue in 2012 and had more than 218 million active users in the second quarter, up 44 percent from a year earlier. That compares with nearly 1.2 billion for Facebook and 240 million for LinkedIn.

Three-quarters of Twitter users accessed the service from a mobile device in the second quarter, and 65 percent of its advertising revenue was generated from mobile in the same period. That's more than the 71 percent and the 41 percent, respectively, for Facebook in the same period.

Twitter also said that it lost $69.3 million in the first six months of 2013, compared with a loss of $49.1 million in the same period last year. Revenue more than doubled to $254 million from $122 million. The revenue figures are largely in line with what analysts have been expecting. Research firm eMarketer had projected ad revenue for all of 2013 at $583 million.

Gartner analyst Brian Blau said the company's expenditures "seemed to be a little bit higher than what I had imagined," but he said it wasn't "totally out of whack" for a growing company that's investing a lot in its business. Twitter says it expects capital expenditures of $225 million to $275 million this year.

During the first six months of 2013, Twitter got nearly all of its revenue - 87 percent - from advertising. Advertisers pay Twitter to insert their tweets, accounts or topics into users' feeds. Burger King, for example, recently promoted its new lower-calorie fries, called "statisfries," on Twitter.

Twitter's IPO has been long expected. The San Francisco-based company has been ramping up its advertising products and working to boost ad revenue in preparation. But it is still tiny compared with Facebook, which saw its hotly anticipated IPO implode last year amid worries about its ability to grow mobile ad revenue. Facebook has since made a comeback, having proven that it is able to generate money from mobile advertisements. Its stock price has been hovering around $50, up from its $38 IPO price.

Twitter's moneymaking potential has minted the company with an estimated market value of $10 billion, based on the appraisals of venture capitalists and other early investors. The IPO could value it higher or lower. PrivCo analyst Sam Hamadeh expects Twitter to aim for a market value of about $15 billion when it prices its IPO.

A big part of Twitter's appeal is in its simplicity. Users send short messages - either public or private - that consist of up to 140 characters. Anyone can "follow" anyone else, but the relationship doesn't have to be reciprocal, which makes the service especially attractive for celebrities and companies that use Twitter to communicate directly with customers.

Twitter has 2,000 employees, up from 200 at the start of 2010.

Twitter did not say which stock exchange it plans to list its shares on, though the company said it intends to use the ticker symbol "TWTR." It also doesn't say how many shares it plans to offer, or at what price.

The underwriters of the offering are Goldman Sachs, Morgan Stanley, JP Morgan, BofA Merrill Lynch, Deutsche Bank Securities and CODE Advisors.

Twitter, a privately held company built on blurbs, has finally laid itself bare in documents that read more like a treatise than a tweet.

The roughly 800-page filing Twitter Inc. released late Thursday on its way to an eagerly anticipated IPO contains tantalizing tidbits about its growth and its attempts to make money from its influential short messaging service.

Prospective investors and rivals alike will dissect and digest those morsels during the next few weeks leading up to the San Francisco company's Wall Street debut.

The suspense surrounding Twitter's IPO was heightened by the company's decision to take advantage of a law passed last year that allows companies with less than $1 billion in annual revenue to keep their IPO documents under seal until management is ready to make formal presentations to investors.

Thursday's lifting of the veil means Twitter can start pitching investors during a so-called "road show" as early as Oct. 24. The company's stock should begin trading under the ticker symbol "TWTR" before Thanksgiving, barring a market meltdown or regulatory hurdles.

Here are five key details revealed in Twitter's tome:

-TWITTER'S GOT GROWTH TO GET EXCITED ABOUT

After Twitter co-founder Jack Dorsey sent out the first tweet in March 2006, the company didn't even try to make money for its few years. Instead, management focused on attracting more users and making the service more reliable.

It looks like Twitter's patient approach is paying off. Since former Google executive Dick Costolo became Twitter's CEO in 2010, the company's annual revenue has soared from $28 million to $317 million last year. Through the first half of this year, Twitter's revenue totaled $254 million, more than doubling from last year. If Twitter maintains that growth pace through the second half, the company's revenue will surpass $656 million this year.

Twitter gets 87 percent of its revenue from advertising. The rest comes from licensing agreements that give other companies better access to the flow of tweeting activity on its service.

Meanwhile, Twitter ended June with 218 million users, up from 30 million in early 2010. More than three-quarters of those users, or 169 million people, are located outside the U.S. Twitter's fastest growing markets are in Argentina, France, Japan, Russia, Saudi Arabia and South Africa.

-BUT THE COMPANY ISN'T PROFITABLE

It takes more than cultural heft to build a business of substance, as Twitter is learning. The company has suffered uninterrupted losses of $419 million since its inception. That's something Twitter has been able to afford because it has raised $759 million from investors. The company still had $375 million in the bank at the end of June and hopes to raise at least $1 billion more in its IPO.

But shareholders of publicly held companies don't tolerate losses for very long, and it could still be a while before Twitter turns a profit.

Twitter's losses widened during the first half of this year to $69 million, up from $49 million in the same period last year. In contrast, both social networking leader Facebook Inc. and professional networking leader LinkedIn Corp. were profitable when they went public.

To make money, Twitter will likely get more aggressive about showing ads.

In the three months ending in June, Twitter generated revenue of $139 million, or an average of just 64 cents per user. In contrast, Facebook generated second-quarter revenue of nearly $1.2 billion, or an average of $1.58 per user, while LinkedIn posted revenue of $364 million, or an average of $1.53 per user.

As Twitter cranks up its marketing machine, it runs the risk of alienating an audience accustomed to seeing relatively few ads in their news feeds. Beyond the U.S., Twitter is gearing to expand its advertising efforts in Australia, Brazil, Canada, Japan and the United Kingdom.

-TWITTER IS MORE "MOBILE" THAN FACEBOOK

Twitter appears tailor made for an age of increasing reliance on smartphones and tablet computers. Three-fourths of Twitter's users already use the service on mobile devices. Perhaps more important to investors, the company sells 65 percent of its ads on smartphones and tablets. Facebook gets 41 percent of its ad revenue from mobile devices.

-ITS MARKET VALUE COULD BE AS HIGH AS $20 BILLION

Twitter hasn't set a price target for its IPO yet, but its documents contain some clues about its recent market value. The company's stock last sold in a privately arranged swap nine months ago at $17 per share. That deal implied Twitter had a market value of $10 billion to $11 billion at the time. Last month, Twitter priced some of its employee stock options at $20.62, based on a third-party appraisal of the company's value.

Some analysts predict Twitter will seek $28 to $30 per share in its IPO. If those projections pan out, Twitter will have a market value of $17 billion to $20 billion, including stock options and restricted stock likely to be converted into common shares after the IPO. Facebook made its stock market debut with a market value of more than $100 billion, but its stock plummeted before making resounding comeback this year.

-CO-FOUNDER EVAN WILLIAMS IS IN LINE FOR THE BIGGEST JACKPOT

Williams, a Twitter co-founder who was CEO for two years until Costolo took over in 2010, owns a 12 percent stake in the company.

If Twitter turns out to be worth at least $17.60 per share in the IPO, Williams will be a billionaire at 41 years old. He remains on Twitter's board of directors.

Another board member, Peter Fenton, and his venture capital firm, Benchmark Capital, own a 6.7 percent stake.

Next in line with a 4.9 percent stake is Jack Dorsey, who came up for the idea for Twitter with Noah Glass and Biz Stone. The stakes of Glass and Stone aren't listed in the IPO documents, meaning they don't own enough stock to trigger legal disclosures.

Many of Twitter's 2,000 employees could become rich, too, if the company's stock fares well. They won't be allowed to sell their stock until Feb. 15, at the earliest.

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