Twitter Filing Opens Books on High-Flier
dealbook.nytimes.com
dealbook.nytimes.com
I think they're picking the near perfect time to do this (and that they probably didn't have much other choice due their investors). - FB's Instagram announced that they will start monetizing - "Tech" is in again; TSLA, FB performing esp. with Mobile focus
Valuation is decent and fair in my opinion. The caveats: a huge chunk of the IPO cash is going to pay out existing shareholders rather than reinvest in the company. Beyond ads, it isn't super taboo for Twitter to sell data so that quants can do better trades. This part of their business is very immature currently.
International worries... I wouldn't look too far into the Asian market. The only thing protecting these Chinese tech biz in my opinion is the Chinese gov't frees up (if they ever do) but that's a topic for later.
Big question: how many people are leaving Twitter after the IPO?
I get Twitter as a communication feed, sure all the tweets about the Oscar nominees is much richer than watching the coverage on Good Morning America but on GMA the model is you pay them $20,000 for 30 seconds of eyeball time when they break for commercial, that doesn't exactly fly with Twitter, not only are they "just the messenger" since the tweets are made up by their users, they have not been able to connect the dots for advertisers like Google or Facebook can with analytics.
That leaves them in a tough spot in terms of their value proposition. Contrasted with say, App.net.
I think they run a real risk of having a 'facebook moment' on their IPO day.
You can literally target ads at a specific set of users, their followers, etc.
The golden standard, search advertising, can tie buying intent to demographics to vendor and track conversions. The old standard, television advertising, can tie viewers to demographics but struggles with tracking conversions and understanding buying intent.
To try to get my head around the scope of this I did a bit of searching around for data on Television advertising. CBS got advertising commitments of $2.7B [1] for placement on its prime time shows. Prime time is 3 hours a night (7-10 or 8-11 depending on your time zone). Assuming 41 advertisements per hour [2] that is 123 Adds per day, 7 days a week is 861 ads, 52 weeks is 44,772 ads per year. If they sold them for $2.7B in commitments that is $60,305 per single advertising placement, one day, one show, one advertisement. I expect it is much more complicated than that but order of magnitude it meshes with numbers people throw around. So if you agree with the reasoning there ...
How does Twitter get to the point where someone will pay even $50,000 to send out a single 'sponsored tweet' or some other chunk of information to an equivalent demographic?
That is the challenge I see for them going forward.
[1] http://online.wsj.com/article/SB1000142405270230376810457746...
[2] http://www.marketingcharts.com/wp/television/primetime-tv-ho...
If I wanted 5$ CPMs, at 60k per ad, I'd expect 12,000,000 people to see it -- not unreasonable by prime time TV standards
From there, I'd argue that for brand advertising TV is more powerful because TV watchers will prefer to continue doing the same thing (stare at TV) vs ignoring the commercial or pressing mute.
Arguably the big difference is the entry requirements, you can't do anything on TV for less than 4 figures, whereas you can get started on twitter for single digit ad spends
Anyway, the feeling of "its really big" but not a lot of specificity about the bigness was, for me, one of the hallmarks of the dot com bubble. I remember Eric Schmidt (which I was at Sun) remarking that if anything he felt the Internet was under hyped. And while he was ultimately correct, the people who were hyping were actually quite mistaken about "how" it was under hyped. (That is so to illustrate my comment about a 'sense' of bigness without specificity).
As I watch Twitter's evolution I am on the look out for either new value they create or captured value they take from other sources. One candidate for losing value is 'nightly news' which already took a huge hit to 24hr news channels. It may not survive another :-). But the 21st century newscast is a very different thing. Exciting times.