What we learned about Twitter from its IPO filing

It’s the most important social media initial public offering since Facebook entered the market – rather ungracefully – in mid-2012: Twitter stocks are going public.

On Thursday, Twitter filed an S-1 form with the federal Securities and Exchange Commission (SEC), giving potential investors a first look at the company’s finances.

Ahead of IPOs, companies are required to make their financials public about three weeks before the start of “road shows,” which they use to try to woo potential investors. Twitter’s SEC filing signals that the company will likely begin its road show in late October, and that shares will debut in November, according to USA Today.

The social media site began about seven years ago as a way for users to reach, quickly and anywhere, a wider audience than they could on other sites such as Facebook. Its hallmark is the concise 140-character blurb, or tweet.

While Twitter is not as ubiquitous as social media behemoth Facebook, its 140-character format has carved out a niche of its own, offering individuals a way to communicate directly with others, including public figures ranging from Pope Francis to Amanda Bynes via tweets.

Twitter undoubtedly has social currency, with a monthly average of 218 million active users in the second quarter, up 44 percent from the same period a year ago, according to the company's SEC report. But it remains to be seen if Wall Street will buy into its star power: Potential investors worry that interest in a social media venture has the potential to wane over time, and the company's prospectus shows that the growth rate of new users has lately slowed and that Twitter has not yet turned a profit. 

This leaves Twitter with two options: either keep expanding its user base, or increase its monetization, Santosh Rao, an analyst at Greencrest Capital, told USA Today.

As Twitter prepares for its IPO, investor and analyst comparisons to Facebook, which went public in 2012, are inevitable. Many have already noted that Twitter is much more aligned with the industry's shift to mobile devices than was Facebook at the time of its IPO. One new piece of information: 65 percent of Twitter's ad revenue in the second quarter in 2013 came from mobile devices. 

Michael Pachter, an analyst at Wedbush Securities, said Twitter may have generated a buzz in September with its announcement of a move toward an IPO, but potential investors are likely to find it harder to understand than Facebook was. (Details of the documents remained private because Twitter’s annual revenue is less than $1 billion, according to Reuters.)

“It’s not well understood by Wall Street,” Mr. Pachter told USA Today. “I bet 80 percent of institutional investors probably had not used Twitter before the company said it had filed for an IPO confidentially last month. Whereas 80 percent of institution investors had probably used Facebook before its IPO last year.”

Twitter has not yet set a price for an initial IPO.