Even though Twitter (TWTR) is not yet profitable, analysts from at least two firms are pretty positive on the company right after the release of its S1 filing. Analysts at Pivotal Research Group and Wedbush Securities both issued brief notes after reviewing the contents of that filing, which provides further information about Twitter’s initial public offering and financial situation. One key piece of information which was missing from the filing though, was which exchange on which the company plans to have its listing.
Twitter seeks $1 billion through IPO
Wedbush analysts Michael Pachter, Nick McKay and Nick Citrin say they were initially surprised at how small of an amount Twitter (TWTR) is seeking. The proposed maximum aggregate offering is $1 billion, which suggests that just a small percentage of the micro-blogging site’s shares will be offered to the public. They note that recent trades in private shares suggested that the company’s valuation is almost $15 billion now, compared to between $9 billion and $10 billion just one year ago.
The analysts believe the relatively small size of Twitter’s IPO is aimed at avoiding the problems experienced by Facebook Inc (NASDAQ:FB) when it started with an offering of $16 billion worth of shares. That was much more than the market seemed to be “willing” to absorb. The Wedbush analysts believe Twitter (TWTR) will make follow-on offerings over the next few years if investors react positively to its financial performance.
Twitter’s financials were not as good as expected
The analysts note that the company’s revenues from the first half of the year were less than they expected, while expenses were more than they expected. The result was “a sizable loss.” The company reported $254 million in revenue, compared to their estimate of $310 million.
Cost of revenue and operating expenses were $316 million, compared to their estimate of $256 million. The result was an operating loss of $63 million, compared to their estimate of operating income of $54 million.
Twitter’s revenue comes from advertising and data licensing
The financial statements showed that the bulk of Twitter (TWTR)’s revenue (87 percent) comes from advertising products, while data licensing brings in the remaining 13 percent of the micro-blogging site’s revenue. Pivotal Research Group analyst Brian Wieser notes that currently the average spend per full-service advertiser is relatively low but that there’s plenty of room to rise.
He said his early impressions of Twitter (TWTR) are positive and notes that the site’s user base is relatively large, even though it’s smaller than a number of other digital properties like Yahoo! Inc. (NASDAQ:YHOO) and AOL, Inc. (NYSE:AOL). He said although Twitter is certainly no Facebook Inc (NASDAQ:FB), the good news is that it’s not Yahoo or AOL either. He sees a greater risk of commoditization with those two sites than with Twitter.
Twitter must get bigger to succeed
He also notes that if Twitter (TWTR) is going to succeed, it’s going to have to scale. He believes additional scale will bring the company back into the black. The analyst sees international revenues as a “key source of growth” for the company, especially since international sales were just launched recently. However, he notes that there are some challenges associated with sustained growth, although he believes Twitter can overcome them.