Twitter has capitalized on investor demand in its initial public offering (IPO), raising $1.82 billion from 70 million shares sold at $26 each, amid concerns over profitability.
Twitter will start trading today at the New York Stock Exchange (NYSE), where its CEO Dick Costolo will be present for the stock’s debut under the TWTR symbol. This Wednesday, the company sold 70 million shares at $26 each, which reportedly has a higher price-to-sales ratio Facebook’s ratio during the same period, and abou the same as LinkedIn’s.
With the IPO, the company is currently valued at $18.1 billion, including stock already issued to employees. According to Bloomberg, the challenge is now upon Twitter’s plate to deliver, the premise being the company targets high growth rate and a rapid sales curve — Twitter forecasts revenue to double annually.
However, there are concerns as to the actual profitability of the company. As of 3Q 2013, Twitter’s loss has widened to $64.6 million, up from a loss of $21.6 million in the previous quarter. The fact that Twitter has opened with this value amid losses is a signal that Wall Street is optimistic with the company’s growth. Analysts predict that the microblogging service will start being profitable by 2015, during which the company is expected to earn $1.9 billion in revenues, thrice the expected earnings by end 2013.
Social media companies are reportedly more difficult to value than traditional ones, according to The New York Times. This is because valuation is highly dependent on how the company will take advantage of its user base and user engagement. Then there is also the concern with geo-targeting and demographics.
To highlight, Twitter reports earning $2.58 in advertising revenue per 1,000 interactions from users in the US. However, Twitter has 77 percent of its user base outside of the country, and the revenue for this audience is 36 cents per 1,000 interactions. While there is a challenge in monetizing users outside of the mainstream American audience, analysts still say this is a room for potential growth.
“The possibilities and opportunities afforded by the platform are limitless,” said CEO Dick Costolo. The question now is whether these opportunities will allow Twitter to actually hit revenue targets in two years’ time to warrant its optimistic IPO valuation.