Twitter's government filings to become a publicly traded company show it might double its annual revenue in 2013, compared with last year, but also give an inside look into the risks a social media company considers that could slow the success of 'TWTR' as a stock.
The tech giant made public its filings with the Securities and Exchange Commission (SEC) late on Thursday, which are available online. The social media giant demonstrated its influence on the global dialogue by using its company Twitter account to announce on Sept. 12 that it had filed S-1 papers with the SEC. The filings reveal Twitter has the same challenges faced by many social media companies: it has popularity but it needs to gain revenue from that user traffic.
The company is growing fast, as Twitter's revenue more than doubled from to reported $254 million for the first six months of 2013, compared with $122.3 million generated during the same period in 2012. However, Twitter reported a net loss of $79 million in 2012, so the company is looking for new ways to monetize its more than 200 million monthly active users.
Twitter reported annual revenue of $317 million for 2012, but has some serious catching up to do with Facebook, which reported $1 billion in annual revenue when it went public in May 2012. Facebook also reported 1.15 billion monthly active users as of June, 30, 2013, dwarfing the more than 200 million reported by Twitter.
The company is looking for those new revenue streams through mobile device traffic, where Twitter is increasingly popular. The filings reveal that more than 65 percent of the company's advertising revenue was generated from mobile devices between March and June 2013. More than 75 percent of Twitter's monthly active users accessed Twitter from a mobile device between March and June 2013, compared to 66 percent during that same period in 2012.
"We expect this trend to continue in the near term, and we plan to continue to develop and improve our mobile applications to further drive user adoption of these applications," the company filing stated. "Mobile has become the primary driver of our business... The 140 character constraint of a Tweet emanates from our origins as an SMS-based messaging system, and we leverage this simplicity to develop products that seamlessly bridge our user experience across all devices."
Citing industry sources in the filing, Twitter states that mobile advertising will boom from 2012 to 2017. The filing stated that the mobile advertising market is projected to increase from $10 billion to $52.2 billion between 2012 and 2017, while the online advertising market will increase at a slower rate, growing from $91.1 billion to $124.7 billion during the same period.
The company's filing also cautioned potential investors about some of the pitfalls of the social media industry. The company said while its user base has boomed since its founding in 2006, that growth rate will slow in years to come as the developed world adopts Twitter and the company will need to expand its reach in other nations. The filing also cautioned that there is no perfect method yet for social media advertising.
"As is common in the industry, our advertisers do not have long-term advertising commitments with us," the filing stated. "Advertising agencies and potential new advertisers may view our promoted products as experimental and unproven, and we may need to devote additional time and resources to educate them about our products and services. Advertisers also may choose to reach users through our free products and services, instead of our promoted products. Advertisers will not continue to do business with us, or they will reduce the prices they are willing to pay to advertise with us, if we do not deliver ads in an effective manner, or if they do not believe that their investment in advertising with us will generate a competitive return."
The filing also cautioned investors that government regulation of social media and online advertising is also evolving, and warned against the potential affect Twitter could face from legislation on issues including privacy, data protection, intellectual property and protection of minors.
"Many of these laws and regulations are still evolving and being tested in courts and could be interpreted or applied in ways that could harm our business, particularly in the new and rapidly evolving industry in which we operate," the filing stated.
More details on the company will likely become public after Twitter starts to meet with potential investors in a so-called road show, which typically occurs about three weeks after SEC filings are made public. After a few weeks of a road show Twitter shares could debut as early as November or December.