After opening at $26 per share, Twitter stock rose 73% to close at $44.90. That brought the company’s valuation up to $31 billion dollars despite the fact the company has yet to make a profit. The IPO of Twitter is the largest and most anticipated IPO, since Facebook went public in 2012. Twitter has more than 230 million active users who “tweet” 500 million messages per day, according to IPO documents. Twitter’s financial statement, states that it lost $69 million dollars in the first six months of 2013 on revenues of $254 million dollars. “About 85% of revenues come from advertising on its site, and more than 75% of Twitter users access the site from their mobile phone.” It’s a communication site not a revenue producing site. At least not yet.
As with Facebook, the financial math simply does not add up. One plus one can never equal $31 billion. Not only are the gross revenues unimpressive, it’s losing money. Every stock trader understands that it’s all about speculation, potential. But there also needs to be some degree of logic and fundamentals and there is none here as with the Facebook IPO. Other than advertising, what is the financial plan to grow Twitter? Advertisers are still not convinced there is an ROI in on line advertising. After all, the best part of the on-line experience is not having to view commercials. That was the same reasoning behind cable television and DVR; to skip the commercials. There are more than one million apps and millions of websites. However, if one picks up a copy of the most recent 902 page Vogue Fall Fashion Issue, one understands that women purchase it precisely for the advertising. Magazine and newspaper advertising is far more profitable than on-line advertising and that’s not going to change in the neat future. Not one single magazine has successfully made the jump from print to digital, not one. That should be a clear message to any doubters. On Friday, Twitter closed down $3.25 or 7.25% at $41.65.