Twitter makes public its secret IPO filing

SAN FRANCISCO — As Twitter Inc. opened itself up to public scrutiny for the first time, it did not limit itself to 140 characters — not even to 140 pages.

Twitter on Thursday made public 240 pages of documents it filed secretly over the summer, starting the countdown to one of the most hotly anticipated technology stock offerings since Facebook.

The financial world was all atwitter as prospective investors pored over the filing that offered the first detailed look under the hood of the privately held company.

Twitter may have changed the way hundreds of millions of people around the world talk to one another, but it's still in the early stages of showing it can turn all that chatter into cash.

But it has seized a moment of breakneck growth to take its first steps toward selling stock to the public.

The prospectus showed growth as high as analysts had anticipated. Twitter's revenue for the first half of 2013 was $253.6 million, more than double that of the same period last year. The company's revenue nearly tripled to $316.9 million in 2012.

But like many young technology companies, Twitter has been losing money. It reported a net loss of $79.4 million last year, and its losses mounted in the first half of 2013 to $69.3 million. Its user growth also slackened in the quarter ended in June to 7% from about 10% in past periods.

That won't put off prospective investors weighing whether to buy Twitter stock, said Max Wolff, chief economist and strategist at ZT Wealth in New York.

"This is a company that's just about a year or two into figuring out how to make money," Wolff said. "In the last year they've become a revenue phenomenon, and the growth is very impressive."

The company has about three weeks until it kicks off a road show to market the offering to potential investors. It said it planned to trade under the ticker symbol TWTR but did not say whether it would list on the New York Stock Exchange or Nasdaq Stock Market.

As with Facebook, analysts expect investors to crowd standing-room-only meetings across the country. Twitter is seeking to raise $1 billion in the offering, which will only heighten competition for shares.

"This is going to be an extraordinarily hot IPO," said Wedbush Securities analyst Michael Pachter. "Demand will be huge for this thing."

Although it was unclear how much of itself it would sell to the public and at what price, Jay Ritter, a finance professor at the University of Florida who is an expert in initial public offerings, expects Twitter will offer about 20% of the company at about $20 a share.

Private market trading in Twitter shares suggests a valuation of about $10 billion, though the IPO could bring a higher worth for the company, Ritter said.

What's fueling all the interest? In seven years Twitter has grown from a fledgling start-up into a global phenomenon. Its 218 million monthly active users send about 500 million short messages each day. In March 2012, Twitter had just 138 million monthly active users.

It's still a far cry from Facebook, which had 845 million monthly active users when it went public in May 2012.

But that Twitter has more than 215 million people using the service each month and 100 million of those people are using it every day "is a stupendous thing," Wolff said.

Twitter warned in the filing that it was not sure how long it would be able to sustain its current rate of growth.

"We expect that our revenue growth rate will slow in the future as a result of a variety of factors, including the gradual slowdown in the growth rate of our user base," the company said.

Still, in an era when many companies are struggling to catch up as people make the leap to mobile devices, Twitter is well positioned for the post-PC era, analysts say. The company says that from April to June, 75% of users accessed Twitter from a mobile device and that this generated 65% of its advertising revenue.

Kevin Landis, who runs Firsthand Technology Value Fund, which picked up a substantial stake in Twitter on the private markets, said he saw nothing surprising or alarming in the prospectus.

"Once Twitter is public, we are not allowed to buy more," Landis said. "If you know someone who wants to sell me shares this week, let me know. If the price is right, I will buy some more."

Twitter could make its stock market debut by early next month, just as Internet stocks are staging a dramatic comeback.

Not only has Facebook soared to all-time highs, but Rocket Fuel, an artificial intelligence software company that distributes digital ads, and FireEye, a computer security software firm, nearly doubled in their trading debuts last month.

"Twitter could not pick a better time than right now," said Michael Yoshikami, who oversees research and investment for Destination Wealth Management.

There is one downside to the timing. Twitter's filing comes against the gloomy backdrop of a government shutdown over a budget impasse, the first in nearly two decades.

Fears are mounting on Wall Street that the government could run out of money within the next few weeks, pushing the country to the precipice of a federal default.

That could delay trading and even lower Twitter's valuation, Wolff said.

"All IPOs live and die based on market sentiments. And it's harder to sell people on the premise of growth and the promise of tomorrow if they're scared out of their wits about today," he said. "The more risk-averse the market is, the harder it is to get maximum value."

The IPO will make the founders and many of Twitter's employees very wealthy.

Co-founder and former Chief Executive Evan "Ev" Williams is the largest shareholder, with 56.9 million shares, or 12% of the stock.

Co-founder Jack Dorsey is the next largest individual shareholder, with 23.4 million shares, or 4.9% of the stock. He's followed by current CEO Dick Costolo, with 7.59 million shares, or 1.6%.

In a letter to prospective investors, Twitter seemed to be trying to strike a balance between its responsibilities to its users and soon to its shareholders, describing its mission as giving "everyone the power to create and share ideas and information instantly without barriers."

"Our business and revenue will always follow that mission in ways that improve — and do not detract from — a free and global conversation," the company said and signed itself @twitter.

Times staff writers Andrea Chang, Chris O'Brien and Andrew Tangel contributed to this report.

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