In Preparation For IPO, Twitter Reveals What Could Kill Its BusinessBy: Chris Crum - October 4, 2013
As previously reported, Twitter filed for a $1 billion IPO, making the SEC documentation publicly available, and for the first time, we get to see what the company’s revenues look like. We also get to see the company assess its risk factors, which is always an interesting part of these filings.
Twitter notes in the filing that investing in its stock carries a high degree of risk.
“If we fail to grow our user base, or if user engagement or ad engagement on our platform decline, our revenue, business and operating results may be harmed,” it says. “The size of our user base and our users’ level of engagement are critical to our success. We had 218.3 million average MAUs in the three months ended June 30, 2013, which was a 44% increase from 151.4 million average MAUs in the three months ended June 30, 2012. Our financial performance has been and will continue to be significantly determined by our success in growing the number of users and increasing their overall level of engagement on our platform as well as the number of ad engagements.”
“We anticipate that our user growth rate will slow over time as the size of our user base increases,” the company continues. “For example, in general, a higher proportion of Internet users in the United States uses Twitter than Internet users in other countries and, in the future, we expect our user growth rate in certain international markets, such as Argentina, France, Japan, Russia, Saudi Arabia and South Africa, to continue to be higher than our user growth rate in the United States. 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.”
“We generate a substantial majority of our revenue based upon engagement by our users with the ads that we display,” it adds. “If people do not perceive our products and services to be useful, reliable and trustworthy, we may not be able to attract users or increase the frequency of their engagement with our platform and the ads that we display. A number of consumer-oriented websites that achieved early popularity have since seen their user bases or levels of engagement decline, in some cases precipitously. There is no guarantee that we will not experience a similar erosion of our user base or engagement levels.”
Here are the exact risk factors Twitter lists for what could potentially negatively affect user growth and engagement:
- users engage with other products, services or activities as an alternative to ours;
- influential users, such as world leaders, government officials, celebrities, athletes, journalists, sports teams, media outlets and brands or certain age demographics conclude that an alternative product or service is more relevant;
- we are unable to convince potential new users of the value and usefulness of our products and services;
- there is a decrease in the perceived quality of the content generated by our users;
- we fail to introduce new and improved products or services or if we introduce new products or services that are not favorably received;
- technical or other problems prevent us from delivering our products or services in a rapid and reliable manner or otherwise affect the user experience;
- we are unable to present users with content that is interesting, useful and relevant to them;
- users believe that their experience is diminished as a result of the decisions we make with respect to the frequency, relevance and prominence of ads that we display;
- there are user concerns related to privacy and communication, safety, security or other factors;
So, basically the same risks all of its peers face. Luckily for Twitter, Facebook’s new hashtags haven’t drawn very much interest, and we’re still not hearing often that major news events are breaking on Google+.
Facebook does have a new focus on public conversations these days, however, and that is obviously where Twitter shines. Still, the two companies have managed to flourish alongside each other for years now, and there’s no indication that this will change anytime in the foreseeable future.
Twitter intends to list its common stock under the symbol TWTR. The company is offering 472,613,753 shares.
You can read the SEC filing in its entirety here.