Twitter has made public its S-1 filing with the SEC, formalizing its planned IPO. The company has opted to be more conservative in its valuation, however, in an effort to ensure investor and consumer confidence.

Twitter Twitter files for $1B IPO, but wont push for the extra dollar like Facebook

For the past months, rumors have abound that Twitter is about to go public. With its S-1 filing with the Securities and Exchange Commission (SEC), released to the public on October 3rd, details about the planned initial public offering (IPO) are now available for public scrutiny. Technology journalists and observers have seen a marked difference in how the company has valued its business, particularly compared with main rival Facebook.

For one, Twitter is clearly a smaller company at its public offering, with 215 million active users per month. In contrast, Facebook had 600 million active monthly users when it was Twitter’s current age. The company’s growth, in terms of user base, is also markedly slower than Facebook, which is mainly credited to its diverse features and interactivity. Twitter is actually trying to fight churn, plus it is facing difficulty in managing fake accounts being used for spam.

However, being conservative is likely meant for Twitter to be taken more seriously by the investor and marketer communities, especially in its aim to turn itself into an advertising platform. In pricing its initial offering more conservatively, Twitter does not want to over-reach and experience a steep stock price decline like what Facebook had to face in the few hours after its IPO. A person familiar with the Twitter board’s thinking, cited by the Wall Street Journal, said the company looks to model its IPO after that of LinkedIn and Workday, which opened at conservative prices, and yet saw their prices soar after their respective stock market debuts.

Another reason for Twitter to keep its IPO at $1 billion is to keep information about the company as private as possible, given the ruling in the recently-passed JOBS Act that allows companies with market value not exceeding $1 billion to keep their filing hidden from public view for at least three weeks.

In terms of earnings, Twitter has yet to turn a profit.  As per the SEC filing, Twitter earned $316 million in revenue in 2012, but booked a net loss of $49 million. As of June this year, Twitter has earned $253 million in revenue — more than twice its earnings in the same period in 2012 — but recorded a net loss of $69 million.

Twitter counts a slowdown in its user growth rate and the prevalence of spam accounts among its risk factors. The company is banking on an increase in engagement even as its growth plateaus off: “To the extent our user growth rate slows, our success will become increasingly dependent on our ability to increase levels of user engagement and ad engagement on Twitter.”

Going beyond its own social network, Twitter considers access and authentications via third-party apps are also considered among its active usage. Given this view, the social network looks to pushing itself as a platform for third party apps. However, investors might want to look into how this plays in Twitter’s accounting of its actual user base, given that the company might not necessarily be able to monetize access from third party applications.

Forbes has actually offered a seven-point comparison between Twitter and Facebook with regard to their IPOs (or planned IPO, in the case of Twitter). Facebook is clearly better in most respects. Twitter is said to be a good platform for information dissemination, but is “much less popular when the world goes quieter.”

Still the IPO will give Twitter the resources it will need to push its growth, and observers are banking on the fact that CEO Dick Costolo is considered a top-notch executive and his team consists of “thousands of the smartest people in the San Francisco Bay Area.” Will this be enough for Twitter to justify its billion-dollar status in the tech and social media scene?

Source: SEC