One year after Twitter IPO, losses outpace gains
Twitter Inc. is celebrating its one- year anniversary as a public company today with a stock that's soared 55 percent from its debut. Its performance by many other measures is less stellar.
After jumping 73 percent to open at $45.10 on its first trading day, Twitter's share price closed lower yesterday at $40.37. The company currently has a record-low enterprise value of 19.4 times trailing 12-month sales, according to data compiled by Bloomberg. The San Francisco-based company also continues to bleed money, with losses widening faster than sales gains. Twitter's profitability has been pushed out to 2017 from 2015 at the time of its initial public offering, according to analysts' estimates compiled by Bloomberg.
The data underline how Twitter has fallen short as the rocket-ship growth stock it billed itself as during the run-up to last November's IPO. The microblogging service touted its global reach and potential during its pitch to investors, asking them to focus on monthly user numbers that ended up slowing. Now Chief Executive Officer Dick Costolo is dealing with the backlash, even as the company's digital-advertising business booms.
The disconnect between what people thought would happen with Twitter's trajectory and what actually happened make this one of the bigger "misfires" in technology stocks, said Francis Gaskins, research director at financial-media site Equities.com. "It's been a round-trip ticket."
Jim Prosser, a spokesman at Twitter, declined to comment. Twitter went public last Nov. 6 at $26 a share.
Revenue Gains
Twitter's rookie-year performance as a public company remains far above that of other technology firms such as social games maker Zynga Inc. or daily-deals site Groupon Inc., both of which were trading below their IPO prices 12 months after their debuts. Twitter is also doubling its revenue on a year-over-year basis, and is sitting on plenty of cash after going public and following a convertible debt offering in September.
The first year of a Web company's life on the stock market also doesn't set the standard for future performance. A year after Facebook Inc.'s IPO, the Menlo Park, California-based company's stock was down about 31 percent from its debut price. Since then, the social network's value has soared on the success of its mobile-advertising business.
Yet Twitter is undergoing an adjustment with investors after a stock rise in the first few months after its IPO, which has now reversed. Twitter shares closed at a record $73.31 on Dec. 26. This year through yesterday, the stock has slipped 37 percent, compared with a 9.5 percent gain in the Standard & Poor's 500 Index.
New Management
This year's lackluster share performance has helped drive shifts within Twitter. Costolo has almost completely shuffled his top lieutenants since the IPO, ousting the chief operating officer, replacing his chief financial officer, head of engineering and head of product.
Twitter's loss more than doubled to $175 million in the third quarter from a year earlier. While sales climbed 114 percent to $361 million in the same period, they were dwarfed by Twitter's mounting expenses, as the company hires new engineers and expands internationally. Costs and expenses more than doubled to $522.7 million. Users rose 23 percent to 284 million, down from 24 percent growth the prior quarter.
"Twitter has gone through every single cycle, from euphoria to 'Wait, what's the business plan?'" said Lise Buyer, a principal at Class V Group LLC, an IPO consultancy. "It'll continue to be volatile until there's a tangible, profitable business model."
Surge, Fade
Twitter's performance illustrates how venture capital- backed IPOs tend to experience a surge in shares shortly after the companies go public, followed by a decline after the hype fades, according to an April report by New York University's Stern School of Business. Venture capital-backed IPOs produce annualized returns of 36 percent above the S&P 500 Index in their first three months as a public companies, according to the report, with returns dropping to 3 percent below the benchmark after one year.
"Twitter had some high expectations right out of the gate, which made it difficult for them to meet or exceed those expectations," said Jeff Sica, president of Morristown, New Jersey-based Sica Wealth Management LLC, which oversees $1 billion in assets including shares of Twitter. "Their business model wasn't going to generate the type of revenue necessary to validate their valuation."