JACK Dorsey hasn’t tweeted in weeks. The last micro-missive from Twitter’s chairman and co-founder was issued on 7 January, when he told his 2.5 million followers: “I don’t think you’re ready for this Jelly”.
He was referring to a new social Q&A app from another Twitter co-founder, Biz Stone, which searches for answers by blasting questions out to both Twitter and Facebook contacts. It’s received mixed reviews – the Wall Street Journal deemed it “a lot of fun”, but “not the best place to go” with a crucial inquiry.
The blackout from Dorsey since that plug for Jelly has caused a bit of consternation, as it comes ahead of Twitter’s first earnings report as a publicly listed company. Investors are champing at the bit for a look at fourth-quarter figures from the hottest IPO of 2013, which are due out on Wednesday.
It seems unlikely that Dorsey has kept schtum for fear of inadvertently breaking disclosure rules. Stone, Twitter chief executive Dick Costolo and other high-ranking company insiders have maintained their usual steady flow of tweets throughout January.
So, what’s up with @Jack? That’s the question some shareholders have been asking.
It could mean nothing at all, but Dorsey is a prolific tweeter, normally averaging something like 15 updates per day. The last time his Twitter activity fell to this sort of level was in mid-2012 when, perhaps coincidentally, there were rumblings that the company might be taken over.
With scant financial data in the public realm, Twitter’s share price has been subject to fickle fancy since its flotation on 7 November. The stock soared on its debut, finishing the day 73 per cent above the offer price of $26 (£15.80) per share. It continued its strong run through Christmas, reaching an all-time high of $74.73 on 26 December. Much of that was attributed to what dealers call “window dressing” – institutional investors buying up popular stocks to keep clients happy when their year-end investment reports are issued.
But the honeymoon was soon over with a string of bearish analyst reports in early January. Most focused upon Twitter’s lofty valuation. Critics couldn’t stomach a share price running at 75 to 100 times expected revenues, a capitalisation that puts it on a par with blue chip stalwarts like Kraft Foods and US insurance giant Aflac.
It prompted warnings from analysts such as Robert Peck of SunTrust Robinson Humphrey, who cautioned that although Twitter has long-term potential, “the market is getting ahead of itself”.
There was more bother at the beginning of last week as investors grew anxious about the entire social media sector ahead of fourth quarter results from Facebook. Twitter took the biggest hit, falling more than 6 per cent to finish at $57.92 by close on Monday.
The anxiety was for naught. Driven by strong growth in the mobile advertising business, Facebook’s fourth quarter report on Wednesday trounced all expectations and set a floor back under the sector. Twitter’s share price rebounded yet again last week.
But that, of course, is precisely what concerns those with jitters about Twitter.
At the current share price, the company is valued at some billion, well above the $14.2bn price tag it attracted at its initial public offering. But no one expects Twitter to turn a profit before 2015 at the earliest.
Groupon famously bungled its first quarterly earnings report after going public in November 2011 in an IPO that valued the daily deals site at $12.8bn. In a revised statement issued a month after its initial report, the Chicago-based company admitted to “a material weakness” in its internal financial controls that tacked another $22.6 million on to its losses in the final three months of 2011. That said, it scraped into profitability in the first quarter of 2012, giving optimistic investors hope that the underlying business might be viable.
Groupon aside, none of the major quoted social media companies have come to the market without some form of profit. Google was valued at $23bn when it floated in August 2004, and made $399m that year. LinkedIn’s IPO pegged its worth at $4.25bn in May 2011, the year it turned a profit of $11.9m.
Facebook shattered all records when it listed on Nasdaq in May 2012 with an initial valuation of $104bn. It made a profit of $32m that year – a figure which rose to $1.5bn in 2013.
Analysts on Wednesday will be looking for evidence that Twitter can emulate Facebook in cashing in on mobile advertising.
That business has grown from essentially zero when Facebook floated less than two years ago to now represent more than half of total advertising revenue. Chief executive Mark Zuckerberg has promised to break out more features of the main site into stand-alone mobile apps, starting with “Paper”, available for iPhone users from tomorrow.
“If 2012 was the year where we turned our core product into a mobile product, then 2013 was the year where we turned our business into a mobile business,” Zuckerberg told analysts last week.
“I expect 2014 will be the year where we begin to deliver new and engaging types of mobile experiences.”
Paper presents stories and themed sections to allow people to follow a range of topics through a customised display. Its aim is to make it “easy to spot articles from trusted publishers and decide what to read or watch,” Facebook said.
All of this has re-kindled excitement over Twitter, which unlike Facebook has been focused on the mobile space since its inception. It launched a new product for advertisers in December called Tailored Audiences, which allows businesses to target Twitter ads at people who have visited their company’s website. Known generically as retargeting, it’s a programme that Facebook has already had success with through its FBX offering.
Twitter has also opened the floodgates to thousands of small business advertisers in a move that is expected to boost revenues by driving up competition for space in the micro-blogging feed. Previously available only to SMEs in the US, smaller firms in the UK, Ireland and Canada now have access to Twitter’s self-serve advertising platform.
Analysts have also cited Twitter’s recent acquisition of MoPub, a mobile advertising exchange that effectively acts as a safety net by generating revenue streams that aren’t dependent upon Twitter users.
These are just a few of the 23 “distinct” product enhancements cited by Goldman Sachs when it boosted its price target on Twitter on 13 January. Goldman’s Heath Terry raised his target to $65 from $46, noting an “accelerating pace” in efforts to drive user and income growth.
“The enhancements include incremental improvements in existing ad products and targeting capabilities similar to the evolution of Google’s adwords platform, improving usability and discoverability, scaling initiatives internationally, and potentially high impact products like retargeting and custom audiences,” said Terry, whose company was lead underwriter in Twitter’s flotation.
“These Q4 innovations follow the introduction of Twitter Cards in Q3 and TV initiatives like Amplify and TV ad targeting in Q2.”
That said, Twitter still has a long way to go before it matches the reach of Facebook, which posted a 16 per cent rise in monthly active users (MAU) in the fourth quarter. More than 1.2 billion people now use their Facebook accounts every month.
Twitter had 232 million monthly active users by the end of the third quarter, a 39 per cent increase on the same period a year earlier. That pace of growth is expected to decelerate – but only slightly – in the fourth quarter, to somewhere around 38 per cent.
As for the bottom line, consensus is that Twitter will report a hefty jump in revenues to $218m for the fourth quarter, with losses equivalent to 2 cents per share.
Chief executive Costolo could pull a Facebook on Wednesday by firing out some sizzling numbers that leave these estimates in tatters. Otherwise, much of the focus will shift to the conference call, where analysts and investors will attempt to flush out what they hope is a strong story on advertising.
Costolo will probably be somewhat cautious for fear of over-hyping expectations, but he is tuned in to the overriding theme. Speaking briefly last month at CES – the event formerly known as the Consumer Electronics Show – he hailed Twitter’s role in bringing in the long-awaited era of one-to-one marketing.
“It’s almost the perfect way to think about Twitter,” he said under questioning.
“We think of it as an indispensable companion to life in the moment. We’re trying to connect marketers with people in the context of what’s happening right now.”
Perhaps @Jack will have more to say about that when he returns from his self-imposed blackout.