In the early days of Twitter, founder Biz Stone says he turned down a huge offer from Mark Zuckerberg. It is now worth $23bn.
Twitter founder Biz Stone has told how he turned down a $500m (£290m) offer from Facebook to buy the firm – and watched as its value later soared to billions.
He told Sky News Digital View that on October 11, 2011 he and co-founder Evan Williams travelled to a meeting with Facebook boss Mark Zuckerberg several years ago.
Neither really wanted to sell the company, he said, so they decided to come up with a number "so big", that "no-one would ever say yes to it".
He said they came up with $500m, and "laughed so hard at that".
But despite Mr Zuckerberg saying it was a "big number", an offer was drawn-up later that day.
The pair turned it down, saying they felt like they were "just getting started" with the business.
He added that he did not get on with the Facebook founder. He told Sky's Ian King.
"I like him, and I respect him, it's just that we didn't click. I'm a jokey guy and he's a very serious guy so every joke I made – it was a tough crowd."
He also commented on the use of Twitter by extremists in Iraq and beyond, saying he still believed the social network was a tool for good rather than evil.
"When you create a large-scale platform where hundreds of millions of people have freedom of expression, you have to take the good with the bad. If you're going to tout the fact you're encouraging free speech then you can't curate it. As soon as you do that you lose the trust."
He also said the growth of Twitter into a $23bn (£13.5bn) company feels "strange". He said.
"I've come to terms with it but I wouldn’t call it surprised - it feels strange in a good way to go to the shopping mall and see the little bird I drew. It doesn't seem that long ago that we were just a rag tag group of guys."
Facebook Tried To Acquire Twitter Twice
According to a report from a new book by New York Times writer Nick Bilton called "Hatching Twitter: A True Story of Money, Power, Friendship and Betrayal", Facebook CEO Mark Zuckerberg tried to acquire Twitter on two separate occasions according to TechCrunch.
The book alleges that Zuckerberg first went through "official channels" before approaching Twitter CEO and founder Jack Dorsey with a $500 million deal. (The price was Twitter's, not Zuckerberg's.)
Apparently, Dorsey took a meeting with Zuckerberg and suggested to the board that the deal would be great for Twitter. The board disagreed and later Dorsey was pushed out of his chief executive position to a largely symbolic role. It was then that the other founders, Evan Williams and Biz Stone, had a meeting with Zuckerberg, too.
This was in October 2011, just before Twitter was a household name, so saying no to $500 million took some chutzpah -- or arrogance, but the board believed it was a "billion-dollar company." However, the rumor was that Zuckerberg told the Twitter founders that they needed to sell to Facebook or deal with a "clone" that his company would create and strangle Twitter in its crib.
The Road To Twitter's IPO
On October 3, 2013, San Francisco-based Twitter filed its S-1 prospectus for an initial public offering seeking to raise $1 billion. Twitter pegged the fair value of its common stock at $20.62 a share in August. According to an unnamed source familiar with the IPO filing, this gave Twitter an implied book value of $12.8 billion based on the 620 million shares outstanding. The share price was 28.6 times Twitter's annual revenues compared to Facebook's 26 times revenues and LinkedIn's 14.5 times annual revenues during their IPO's.
The following infographic tells everything you need to know about Twitter at the time they filed for their IPO with the SEC:
On November 7, 2013, Twitter's had its IPO. Shortly after the opening of trading, Twitter Inc. (NYSE:TWTR) shares rose 73 percent in a frenzied trading debut that drove the seven-year-old company's value to $25 billion and evoked the heady days of the dot-com bubble.
The stock closed its first trading day at $44.90 a share from the initial public offering price of $26 set late on Wednesday, falling back from a near-doubling in price at a session high of $50.
Investor enthusiasm for the microblogging company defied traditional valuation analyses. The shares traded at about 22 times forecast 2014 sales, nearly double the multiple at social media rivals Facebook Inc and LinkedIn Corp, even though Twitter is far from turning a profit and posted a loss of almost $70 million for its most recent quarter.
Yet fans believed that Twitter, which boasted it had 230 million users globally and had revenues of $253.6 million for the first six months of 2013, and $316.9 billion for the year ending December 31, 2012, had established itself as an indispensable Internet utility, alongside Google Inc and Facebook, and that it has only scratched the surface of its potential as a global advertising medium.
Mark Mahaney, an analyst at RBC Capital Markets, said.
"When people use Twitter they are following certain people, they're searching for specific information. There are powerful marketing signals that are almost Google-esque, something that Facebook doesn't really have."
The IPO was shadowed for months by Facebook's troubled 2012 debut, in which the shares quickly fell below their offering price amid trading glitches and subjected the company and its lead banker, Morgan Stanley, to accusations that they had been greedy in pricing the deal.
Twitter's opening appeared to go off without a hitch, prompting Anthony Noto, the Goldman Sachs banker who led the IPO, to write a simple Tweet: "Phew."
Still, Twitter found itself subject to the opposite criticism, that it had priced the shares too low and left more than a billion dollars on the table.
Ken Polcari, director of the NYSE floor division at O'Neil Securities, said.
"In my mind they certainly could've raised the price on this thing and gone into the low 30s. From an outsider looking in I would say they were overly cautious because they didn't want a disaster on their hands ... I'm sure the company didn't want a Facebook debacle, I get that, but I think they were overly cautious and it cost them some money."
Heavy demand for the IPO shares was apparent before the final pricing. Market sources said investors had asked for 30 times the 70 million shares on offer in the IPO, representing about 13 percent of Twitter's outstanding common shares.
Twitter could've raised $2.1 billion if an underwriters' over-allotment had been exercised making it the second largest Internet offering in the United States behind Facebook Inc's $16 billion IPO in 2012 and ahead of Google Inc's 2004 IPO, according to Thomson Reuters data.
The NYSE, which snatched the listing away from its tech-focused rival, Nasdaq, marked the occasion with an enormous banner with Twitter's bird logo along its Broad Street facade.
Twitter executives including Chief Executive Dick Costolo and the three co-founders - Evan Williams, Biz Stone and Jack Dorsey - appeared on a packed exchange floor to witness the debut.
At current valuations, the stakes owned by Williams and Dorsey would be worth around $2.7 billion and $1.1 billion, respectively. Costolo, who invested $25,000 in the fledgling company in 2007, holds a 1.4 percent stake worth about $360 million.
They hefty valuations were cause for celebration for some insiders but they sounded alarm bells for some investors who cautioned that the froth was unwarranted.
Pivotal Research's Brian Wieser wrote in a note cutting his rating on the stock to "sell" from "buy".
"With a price that pushes into the high 30s and beyond, Twitter is simply too expensive. One way to justify a $45 price in our model would involve presuming that Twitter could generate more than $6bn in annual revenue by 2018. However, we think that would seem overly optimistic."
British actor Patrick Stewart, of Star Trek fame, rang the opening bell at Big Board together with nine-year-old Vivienne Harr, who started a charity to end childhood slavery using the microblogging site.
Stewart said, adding that he had only been tweeting for about a year.
"I guess I represent the poster boy for Twitter."
In San Francisco
At Twitter's headquarters in San Francisco, offices opened early and hundreds of employees flocked to the 9th floor cafeteria to watch the festivities on TV while eating "cronuts," a croissant-donut hybrid, made by Twitter's resident chef, Lance Holton.
The public debut was the latest milestone for a service that was born out of a nearly-defunct startup in 2006 and was derided by many in its early years as a silly fad dominated by people talking about what they had for breakfast.
But Twitter quickly began to penetrate popular culture in unexpected ways, with its open design and broadcasting format attracting celebrities, athletes, politicians and anybody who wanted to share short, punchy thoughts with a digital audience.
Its business potential developed more slowly, and the company appeared to be floundering as recently as three years prior to the IP, when it was riven by management turmoil and frequently crippled by service outages.
Under Costolo, who took over as CEO in October 2010, the company rapidly ramped up its money-making engine by selling "promoted tweets," messages from marketers that are distribute to a wide-ranging but targeted group of users. In the third quarter 2013, Twitter made $168 million in revenue, it said, more than double the third quarter 2012.
The company said in its investor prospectus that more than three-quarters of its users were outside the United States. Despite its early reputation as a hangout for Silicon Valley early adopters and tech geeks, some of its most active markets now include Japan, Indonesia, Brazil and Saudi Arabia.
The three most-followed accounts belonged to a trio of pop stars: Katy Perry @katyperry, Justin Bieber @justinbieber and Lady Gaga @ladygaga. (U.S. President Barack Obama @barackobama came in fourth.)
P.J. Crowley, the former U.S. State Department spokesman, said.
"Twitter has, when coupled with the increasing distribution of smart phones and reach of the Internet, an impact on global connectivity and transparency. It has definitely contributed to the acceleration of the news process and helped to expand the availability of information sources to a wide range of people."
The 140-character messages have spawned an Internet culture of its own. The "hashtag," a pound symbol devised by early Twitter users to denote the topic of a conversation, has became ubiquitous, with the word even becoming an ironic expression parodied by the likes of "Saturday Night Live."
As Twitter's stock soared after the opening, the company's market value, including restricted share units and other securities that could be exercised in the coming months, was over $28 billion.
Fund managers who got small allocations at the IPO were hopeful the stock would trade down after Thursday's pop.
Mark Hawtin, portfolio manager of the GAM Star Technology Strategy, said.
"We have a target of $40 and we won't buy more as long as it is trading above that."
Jerry Jordan, manager of the $48.6 million Jordan Opportunity Fund, who got a small allocation, said he would buy more of Twitter if it trades down around $30-$35.
"A lot of these sexy IPOs have a big pop on the first day and then they grind sideways."
Twitter's successful debut is likely to stoke interest in other up-and-coming consumer Internet companies such as Uber, Pinterest, Airbnb and Square, all of which boast private-market valuations well north of a billion dollars and could go public in the coming years.
Still, two early social media success stories, Groupon Inc and Zynga Inc, have suffered major reversals since going public last year. Groupon, despite big gains in its shares this year, still trades at less than half its 2011 IPO price. Zynga is worth about a third of its 2012 IPO price.
And first-generation social media firms such as MySpace have all but vanished as fickle users moved on to the next big thing.
On April 29, 2014, Twitter released its first quarter financial performance, reporting revenues of $250 million for the quarter, a net loss of -$132.4 million, and earnings per share of $0.00 on a non-GAAP basis. The street had expected Twitter to report revenue of $241.5 million, and a three cent per-share loss.
That non-GAAP $0.00 EPS is slightly occlusive — the company in fact had non-GAAP net income of $183,000 in the period, or about the cost of one engineer’s yearly cost to a tech company. However, when you stretch $183,000 across more than half a billion shares, it doesn’t go far.
Twitter’s revenue is up 119% year-over-year. On a GAAP basis, Twitter lost a stunning $132 million in the period. That amounts to a GAAP net loss of $0.23 per share.
Twitter Net Losses Pile-up
Twitter has yet to generate a net profit in any quarter since it began operations. For the years ending December 31, 2013, December 31, 2012 and December 31, 2011, Twitter reported net losses of -$645.3 million, -$79.4 million and -$164.1 million respectively. Twitter also reported a net loss of -$132.4 million for the 1st Quarter ending March 31, 2014. All together, Twitter is carrying cumulative net operating losses of $1.127 billion since it began operations in 2006.
Twitter Operating Expenses
Twitter operating expenses during the 4th Quarter 2013 were a record $752.4 millon -- exceeding the combined total of $548.4 million spent during first three quarters of 2013. Most of this went into research and development (R&D) and sales and marketing expenses. These two constitute the majority of Twitter’s operating expenses and stood at a combined 62.5% of revenue in 2013.
Twitter’s R&D expenses as a percentage of revenue has come down from a massive 91.7% in 2010 to about 32.2% in 2013. However, the figure stood way above Facebook’s 9.6% which suggests that the company has a long way to go in terms of improving monetization and reducing the cost burden.
Twitter’s sales and marketing expenses as a percentage of revenue increased from 21.4% in 2010 to about 30.3% in 2013 as it ramped up its sales force to sell ad inventory slots and acquire customers. In comparison, the figure for Facebook stood at around 10.5% during the same year.
Twitter reported that it had 255 million monthly active users. In the sequentially preceding quarter, Twitter had reported 241 million monthly active users. That’s growth of 14 million in the three-month period, or around 5.8%.
Twitter Monthly Active Users
While sharing its financial results for its first quarter 2014, Twitter announced a number of new milestones that showed the service’s user growth has slowed while its mobile advertising share has grown. The social network has now passed 255 million monthly active users, 198 million of which were monthly active mobile users as well.
The company’s monthly active user count has only grown 25% in the past year. Monthly mobile active users have grown by 31% in the past year. However, this growth remains modest. 78% of Twitter’s users access the site from a mobile device. Investors appeared concerned that despite quickly expanding revenue, Twitter’s days of massive user growth were over. That meant lower future top and bottom line growth.
Twitter Share Prices
When Facebook went public in May 2012, the company's shares were priced at $38. On the first day of trading, the stock price didn't jump as anticipated and would likely have fallen below the IPO price of $38, if the IPO's underwriters hadn't stepped in to support it. In subsequent weeks though, the share price quickly fell below $30 and continued to slide for months. It took the stock more than a year to return to its IPO price, clearly indicating that the IPO had been priced too high by Facebook's underwriters.
18 months later, Twitter, having witnessed first hand how hard Facebook's reputation had been hit by its disappointing IPO, was desperate to avoid making the same mistake as its big rival. The company's IPO was priced at $26, which was above its initial price range, but still modest according to many experts who anticipated massive demand for Twitter's shares. When Twitter finally made its trading debut on November 7, the share price jumped more than 70 percent, creating a lot of positive press for the company. The fact that Twitter's shares have continuously traded above $40 since the IPO and are currently approaching $50 indicates that conversely to Facebook's IPO, Twitter's IPO was significantly underpriced.
In the end it seems that Twitter avoided Facebook's IPO mistake, overpricing, by making another mistake, underpricing. To figure out which is worse, one needs to remember what the goal of an initial public offering is. Normally, a company goes public in order to raise money that can be invested in the company's growth. By pricing its IPO very high, Facebook squeezed every dime out of the investors waiting eagerly to get in on the hottest IPO of all times. The company ended up raising more than 16 billion dollars in return for lot of bad publicity and some disgruntled investors. Twitter chose the opposite route. Selling 80 million shares at $26 a piece, the company raised $2.1 billion when it easily could have raised more. Assuming a possible IPO price of $40, Twitter left more than a billion in investment capital on the table or rather in the accounts of its early investors. Twitter sacrificed that money in return for a lot of goodwill, but filling the pockets of banks and investors has never been the purpose of an IPO. So in the end, by avoiding Facebook's mistake, Twitter may have made an even bigger one: losing out on a billion dollars worth of additional capital.
Twitter's share price has been on a steady decline since the start of 2014. Twitter shares peaked $73.31 on December 26, 2013 and ended the year 2013 at $63.65 per share. Twitter shares hit a low of $30.66 on May 7, 2014. Twitter's share price has rebounded some since its low, and ended at $37.84 at the end of trading on July 10, 2014.
Twitter Revenue Forecasts for Q2 2014 and Full-Year 2014
Twitter expects its second quarter revenue to come in between $270 and $280 million. Full year 2014 top line should be between $1.20 and $1.25 billion, coming in on the low end of expectations.
That aside, Twitter’s $2.2 billion in cash and equivalents is right where it was before the quarter started, meaning that the company has plenty of runway to execute on whatever its plans may be.
Conclusions and Ending Comments
I am really disappointed in Twitter. From the size of its R&D and sales and marketing expenses, I see a public company that is still trying to develop a predictable and successful business model. This is a company went to public much too soon, but in hindsight chose the IPO route to take advantage of the recent popularity of social networks going public, and the success of Facebook in monetizing mobile and rising share price.
Facebook was able to successfully monetize desktop users, then quickly switched its platform to successfully monetize its rising mobile users. Facebook was able to do this, and it did this quickly, with much success, and has been rewarded by Wall Street and Main Street investors with a stable share price.
I am not too sure that Twitter will be able to repeat the success of Facebook, and prop up its share price to its high of $73.31 in late 2013. For one thing, Twitter users were already predominantly mobile, and it has monetized them with its line of "promoted" advertising products. However, how much more can it squeeze out of those mobile users.
User participation is also a huge issue with Twitter. Less than 5% of Twitter users actually tweet on a regular basis (once a day). So what if they have 255 million monthly active users. Only 5% of them are active on a regular basis. The recent Twitter redesign may help increase user participation, but not without giving users an incentive or sense of urgency to tweet. The limit of 140 characters per tweet really limits user participation. Facebook places no such limit on user timeline posts, and this is a huge competitive advantage. It is no wonder that average revenues per user are one-fifth of Facebook.
Courtesy of an article dated June 10, 2014 appearing in Sky News, an article dated October 4, 2013 appearing in Bloomberg, an article dated November 5, 2013 appearing in NBC Bay Area, an article dated November 7, 2013 appearing in Reuters, an article dated April 29, 2014 appearing in TechCrunch, an article dated March 13, 2014 appearing in Forbes, an article dated April 29, 2014 appearing in the TNW Blog, and an article dated December 10, 2013 appearing in Statista