Twitter faced tough questions before its IPO

The US Securities and Exchange Commission asked the social media giant about slowing user growth

Topics: Twitter, IPO, SEC, online advertising, tweets, , ,

Twitter Inc., leading up to its Nov. 6 initial public offering, faced questions from the U.S. Securities and Exchange Commission about slowing user growth and whether people were losing interest in viewing ads — the company’s main source of revenue.

The SEC called for details on how the microblogging website planned to deliver on its promises of fast growth, according to filings released today. Though Twitter’s revenue had more than doubled over the past year, increases in users had slowed and there was no clear path to making a profit.

In its response, Twitter said its revenue growth would become increasingly dependent on its current users becoming more engaged — as measured by how often they view their timelines — since it expected the addition of new accounts to slow. Algorithms to target ads to users with related interests will be used to make them more effective and valuable to marketers, the San Francisco-based company said.

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Twitter still needs to deliver on its business model. Its loss widened to $64.6 million in the September quarter from $21.6 million a year earlier, and it’s unlikely to be profitable until at least 2015, according to the estimates of analysts compiled by Bloomberg. LinkedIn Corp. and Facebook Inc. were both profitable at the time of their IPOs.

Even so, Twitter shares have gained 74 percent since the IPO. The stock fell 1.1 percent to $45.13 as of 9:40 a.m. today in New York.

Twitter has touted its high level of engagement with mobile users — an area where other Web companies have struggled. About three-fourths of Twitter’s active users accessed the service from mobile devices in the three months ended in September, compared with 69 percent in the year-earlier period, according to the company’s IPO filing. More than 70 percent of advertising revenue comes from those devices, a higher proportion than at Facebook.

–Editors: Nick Turner, Crayton Harrison

 

To contact the reporter on this story: Alex Barinka in New York at abarinka2@bloomberg.net

 

To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net

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