On Tuesday night, social media titan Twitter filed an amended S-1 with the SEC, further setting the stage for what looks like a hugely successful IPO on the New York Stock Exchange
(NYSE:NYX) this November.
Let's get right to the important stuff. The big news is that Twitter's advertising revenue growth accelerated to 123% from 113% last quarter, as you can see in this chart:
This is good news because the most obvious bear case is slowing growth -- the same kind
that cut Facebook
(NASDAQ:FB) off at the knees ahead of its ill-fated 2012 public offering.
Total revenues grew just a bit slower at 105% (which is still pretty darn impressive), due to a slowdown in demand for Twitter's data licensing services, which accounted for just 9% of revenues.
Here's a chart showing the trend in total quarterly revenues:
This compares favorably to the growth rates in publicly traded social media companies. I took a look at consensus estimates for Q3 revenues at these public companies, and as it stands, Twitter is the fastest growing name of the bunch, outpacing LinkedIn
(NASDAQ:Z), and Pandora
(NYSE:P) by huge margins.
Heck, even if we extend these growth comparisons outside of social media into the larger tech landscape, it's not easy to find companies keeping up: Twitter is still blowing the doors off the likes of mega-growth stories like Palo Alto Networks
(NASDAQ:SPLK), and 3D Systems
And of course, the big caps like Apple
(NASDAQ:GOOG), and Qualcomm
(NASDAQ:QCOM) aren't even in the same neighborhood.
As far as the user base goes, growth is inevitably leveling off. In Q3, the number of monthly active users grew by 6% quarter-over-quarter, down a bit from 7% last quarter.
This is in no way good. There is no doubt that Twitter needs to maximize its user base as much as possible.
However, Twitter has gotten awfully good at monetizing its user base as its revenue growth rate has dramatically outstripped growth in the user base.
But Twitter Is Losing Money!
Indeed it is! Year to date, Twitter has posted an operating loss of $134 million, up from $68 million last year, as it's been pouring money into research and development as well as sales and marketing.
The company also plainly states in the offering document that it "may continue to incur significant losses in the future and may not be able to achieve or maintain profitability."
It's Time to Throw Away the Textbook
Assessing Twitter ahead of its IPO -- especially without an official price in place -- is difficult, but odds are, this deal is going be huge.
Think about what happened with Facebook.
Facebook's IPO flopped largely because it was priced too high, and it came during a period of slowdown for the company. But this year, Facebook found its footing; it's now 32% above its too-high-at-the-time $38 IPO price, and 185% above its 2012 low of $17.55.
And why did Facebook come back so hard? Because it got really, really good at monetizing its growing mobile user base -- something I certainly did not see coming.
Twitter's even better at it.
Twitter has 70% of its ad revenues coming from mobile, and it's growing far faster than Facebook.
Additionally, note that Facebook's lead underwriter was Morgan Stanley
(NYSE:MS), and it went public on the Nasdaq
(NASDAQ:NDAQ), which experienced glitches on its first day of trading.
Twitter went with Goldman Sachs
(NYSE:GS), despite having Cynthia Gaylor, a former heavy-hitting Morgan Stanley tech banker, as its head of corporate development. And as mentioned above, Twitter went with the NYSE instead of Nasdaq.
Given that Twitter's taking a polar opposite path to IPO, doesn't it stand to reason that the Goldman Sachs will price Twitter a bit low in the same way that Morgan Stanley priced Facebook high?
Technically speaking, Morgan Stanley did its job by getting the most money possible for Facebook. But I imagine Twitter wants to avoid the PR mess associated with a stock price flop.
There's no telling the future, but as it stands now, I'm as optimistic on the Twitter deal as I was pessimistic about Facebook in 2012.
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