Twitter IPO: To Invest or Not to Invest…
Most of you will have heard by now that Twitter intend to float on the stock market and even better, the news that social media is hot property now that Facebook’s initial disaster has recovered. Twitter, on the surface of it, seems like a good bet, but is this really the case and is it a good idea to invest?
All investments carry a risk of course, and Twitter is no exception. For me, the most worrying thing about Twitter is that since launch in 2006, the company has failed to turn a profit. However, last year can be discounted really, since Twitter invested heavily and this makes for a profit and loss column that looks deceptively poor.
Remarketing is the new black
According to Money Morning, Twitter will have to go down the remarketing route if they are to build an advertising model that can compete in a highly aggressive market. However, this is just one opinion and the success that Twitter has seen with mobile advertising within the past year bodes well for the company.
Mobile accounted for 65% of Twitter’s overall revenue last year and this is likely to grow, thanks to the continued consumer interest in all things smartphone. This may be enough to sway potential investors in favour of putting their cash into the social network. There’s plenty of potential for growth and the investments that Twitter itself has made into its business model is certainly encouraging.
In Twitter’s official filing registering for the upcoming IPO, Twitter stated that the company turned a profit of just exceeding $21m in the first half of 2013. However, a report by CNN Money disputed this, pointing out that from an accountant’s point of view, the figure that was more realistic was a loss of just over $69m
This is due to an “unorthodox accounting term” known as EBTITDA, in which companies attempt to manipulate the figures in order to steer potential investors in their preferred direction. This particular one stands for earnings before interest, taxes, depreciation, and amortization which means that revenue is measured without these costs being included.
However, is this a true reflection of the company’s financial status? I would very seriously doubt it, since all of these things are legitimate business costs. Saying that, there are also always grey areas in business, so it’s likely that any serious investor would account for these and have a professional financial adviser look over all of the figures before making a decision.
Tweaking the figures
EBITDA isn’t all though, Twitter also tweak the figures when it comes to stock-based compensation for employees. Of course, the company is far from the only one participating in this kind of business adjustment, LinkedIn used the same process when it released its figures for 2011, whereas Facebook allegedly didn’t participate in any ‘cooking the books’, as the practice is affectionately known in the UK.
Whatever the case, the fact is that it’s a perfectly legal way to approach the presentation of figures when preparing for an IPO, and as such, Twitter are hardly committing a cardinal sin by presenting the company in the best, if not altogether accurate, light.
For investors, the difficulty comes in not really knowing the long-term outlook for Twitter and social media, especially since the social network’s userbase is slowing in terms of growth. However, it’s one of the most popular platforms for business social networking and fan-types love it as a mean s to innocently stalk their favourite celebs.
With that in mind, investment comes down to one main issue. Risk, how big is it in this case?
Are you planning on investing in Twitter? Let us know, yay or nay, via the comments.