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By Thomas Baekdal - October 2013

Twitter, IPO, and Lack of Profit

You have probably already heard it, but Twitter is not profitable.

We have incurred significant operating losses in the past, and we may not be able to achieve or subsequently maintain profitability.

Not only that, but its revenue are much lower than what people estimated:

The company lost $67 million in the first half of 2013, the filing revealed, and it has an accumulated deficit of $418.6 million. That total shortfall is larger than its revenue last year, $316 million, itself a smaller number than most analysts were expecting.

Despite this, Twitter is filing for $1 Billion IPO.

Now, all is not as bad as it appears, because as Mashable points out most of its loses is caused by acquisitions. In other words, they are losing money because they are investing in the future (if those investments pay off). But even without those extra acquisition costs, their profit would only be $38.5 million.

One key metric that we should care about as brands is "advertising revenue per timeline view" ... which is an indication of how much money Twitter thinks it can get away with charging, compared to the ROI brands would get out of it.

In Twitter's case, they have made only $0.8 for every 1000 timeline views (i.e. CPM), globally. Although in the US alone it's $2.3 per 1000 views.

It's important to note here that a 'timeline view' is not the view of a tweet. It's the number of times people see the timeline as a whole (similar to a page view on a news site).

Again, it's a pretty low number, but it's up 26% from last year.

But regardless of how you see it, these social IPOs still serve as a stark reminder of how little value there actually is in creating social networks. Sure, when combined with scale, the total sum can be big, but per 'customer', it's an appalling performance.

Think of Facebook. 1.1 billion active user; $4.3 billion in advertising revenue. That means that for a full year, each person only contributed $3.9 dollars to the bottom line.

$4.3 billion is of course a lot of money, but you would be hard pressed to find any business with a lower revenue per customer.

It also serves as a wakeup call for those who say that the future for newspapers is to become social platforms. I don't see how they would be able to scale enough to actually make that work.

The reason why Twitter, G+, and Facebook (kind of) works is because they are content neutral. Newspapers, on the other hand, are defined within the niche of 'news'.


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Thomas Baekdal

Founder, media analyst, author, and publisher. Follow on Twitter

"Thomas Baekdal is one of Scandinavia's most sought-after experts in the digitization of media companies. He has made ​​himself known for his analysis of how digitization has changed the way we consume media."
Swedish business magazine, Resumé


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