Twitter is popular, but where are profits?
It can help overthrow dictators. But can it make money?
Protesters famously used Twitter to organize during the Arab Spring three years ago. President Barack Obama announced his 2012 re-election victory using the short messaging service. Lady Gaga tweets. So does the pope.
But for all its power and reach, Twitter gushes losses — $65 million in the third quarter, nearly three times more than it lost a year ago.
As Wall Street analysts size up Twitter ahead of its first public stock sale this week, more than a few are expressing concern about the company’s lack of profits.
Those misgivings are echoed by average investors. Some 47 percent of Americans believe Twitter won’t be a good investment, according to a recent AP-CNBC poll.
Of course, a company’s pre-IPO losses are no indication its stock will do poorly. Amazon.com had big losses before it went public 16 years ago and still occasionally posts them. Yet its stock is up more than 18,000 percent since the IPO.
Even so, future Twitter shareholders poring over the company’s more than 200-page IPO document are being asked to take a leap of faith. The document never makes clear when the company will sell enough ads to stanch the red ink and deliver sustainable profits.
What’s Twitter’s sales pitch to potential investors?
“They’re taking you to the edge of a swamp and saying, ‘Someday, this is going to be paradise,’” says Anthony Catanach, a professor of accounting at Villanova University.
Pessimists who have gazed at that swamp believe Twitter is going public too soon but can’t resist exploiting a market in which investors are eager to look past losses as stock prices soar to record highs. Optimists refuse to believe a company that has turned itself into a worldwide water cooler in just seven years can’t make big money — at least someday.
“Twitter is in its infancy, and it’s a site a lot more people will go to,” says Michael Pachter, an analyst at Wedbush Securities. “They’ll figure out how to sell advertising.”
Many money managers seem to agree. In a reflection of high demand from them for the stock, Twitter on Monday increased its expected IPO price to $25 per share, up from $20.
To the optimists, Twitter’s losses are expected, even welcome, as the company spends hundreds of millions of dollars to attract users and build an ad business.
Debra Aho Williamson, an analyst at research firm eMarketer, sees plenty of opportunity for Twitter to shake up the ad world. She says Twitter is an ideal medium for targeting people with ads while they’re away from home because it’s mostly accessed by smartphones and other mobile devices.