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October 4, 2013

How much will Twitter make when it floats?

The social networking site hopes to raise $1bn.

By Cbr Rolling Blog

Twitter feels confident enough to claim it will raise $1bn from its upcoming IPO (expected to go on the American stock market Nasdaq), but how much will it really be worth?

The social networking site is red hot at the moment, citing figures of 218m users per month, up from 138m in March 2012, and 500m daily tweets in its filing to US regulators in preparation for the flotation.

Its revenue has grown from just $28m in 2010 to $317m by the end of last year as well, very healthy figures by any count.

But its net loss of $69m in the first six months of this year might be ringing alarm bells for some investors.

While analysts aren’t too concerned by a relatively young (seven years old) company still posting losses considering its popularity, Twitter itself has pointed out risks to its future wellbeing in the papers it filed.

These include failing to grow its user base, a decline in how much people engage with each other on the site, as well as tax liabilities predicted to "arise upon the initial settlement of restricted stock units, or RSUs, in connection with this offering".

Most of which is just a posh way of saying ‘if people get bored with us, we’re screwed’ – and they’re right, losing users is a real issue when advertising is your biggest cash generator – it’s responsible for 85% of the business’s income.

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Which is exactly what happened with MySpace. Bought by News Corp for $580m in 2005, the same company sold it last year for just $35m.

It was hot property until Facebook came along. And while the latter seems to have found some stability, it is also pretty much entirely reliant on advertising for its vast wealth.

Facebook’s IPO wasn’t spectacular, and was actually a little embarrassing for the company when its value fell well short of what was expected, though its shares have since recovered to that sought-after valuation.

But what Twitter needs the cash for is to innovate and expand and try new ideas – the basis of growth for any company. You can’t stand still, you have to keep moving.

So if its IPO goes well, and it continues to reach the next big ideas before another young silicon upstart can, then things should turn out well for Twitter, at least for the foreseeable future.

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