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Twitter files for IPO, plans to raise $1 billion

(MoneyWatch) Twitter late Thursday filed its paperwork with U.S. securities regulators for what will be the most anticipated technology industry IPO since Facebook (FB) went public last year.

According to the S-1 form filed with the SEC after markets closed, Twitter expects that the sale of shares, between those the company offers and those held by insiders, could command as much as $1 billion. That's a fraction of the roughly $16 billion Facebook raised. However, unlike Facebook, Twitter has been losing money since at least 2010.

Where Twitter excels is in the hot mobile market. In fact, the company says that mobile users have become the primary driver of its business. In the second quarter of 2013, 75 percent of monthly average users accessed Twitter from a mobile device, and more than 65 percent of the company's revenue came from mobile devices. After going public last year, Facebook's stock fell because investors were concerned about the perceived low percentage of its business that came from mobile.

Twitter had revenue last year of $317 million, according to the filing. It lost $69.3 million in the first six months of 2013, up from $49.1 million in the year-ago period. But sales in the first two quarters of the year outpaced that widening loss, with revenue more than doubling to $254 million, from $122 million a year ago.

Although Twitter has exploded in popularity in recent years, especially in the U.S., the company expects faster user growth in certain overseas markets. By contrast, attracting users in China -- the world's biggest Internet market -- will be difficult, the company acknowledged.

"In general, a higher proportion of Internet users in the United States uses Twitter than Internet users in other countries," Twitter said in its registration statement. "Accordingly, in the future we expect our user growth rate in certain international markets, such as Argentina, France, Japan, Russia, Saudi Arabia and South Africa, to continue to be higher than our user growth rate in the United States. However, we expect to face challenges in entering some markets, such as China, where access to Twitter is blocked, as well as certain other countries that have intermittently restricted access to Twitter."

Twitter disclosed that its ad revenue per so-called timeline view in the U.S. for the three months ended June 30 was $2.17, compared with 30 cents in revenue for the rest of the world. This is significantly different than the traditional revenue per user that Facebook and others use. According to the registration statement, Twitter defines timeline views as follows:

... the total number of timelines requested when registered users visit Twitter, refresh a timeline or view search results while logged in on our website, mobile website or desktop or mobile applications (excluding our TweetDeck and Mac clients, as we do not fully track this data).

The company says that timeline views and timeline views per monthly average user are measures of user engagement and that advertising revenue per timeline view is "a measure of our ability to monetize our platform."

The problem is that the complexity can obscure how well Twitter can translate users into revenue. For example, in the quarter that ended June 30, the company generated $2.17 in U.S. ad revenue per 1,000 timeline views. The number of timeline views per monthly average user was 825, down slightly from the previous quarter. That means the average ad revenue per user was actually $1.79. That is poor compared to Facebook, and even the social networking giant is far behind a competitor like Google (GOOG) in ad revenue.

Twitter fared worse in making money from overseas users. With 30 cents in ad revenue per thousand timeline views and 652 timeline views per monthly average user, the ad revenue per user was an anemic 20 cents for the quarter. The company says that the disparity will "continue for the foreseeable future."

The rest of Twitter's revenue comes from licensing historical and real-time data to companies, allowing them to analyze public tweets and their content. Of that, three-quarters of the revenue comes from five data partners, which means it is extremely dependent on all of them.

According to the filing, as of June Twitter has more than 200 million monthly active users generating more than 500 million tweets a day.

Twitter will trade under the ticker symbol "TWTR," although it has not said what stock exchange it intends to list on.

Now that Twitter has filed its paperwork, the company will work with investment bankers to mount a so-called road show to entice large institutional investors, such as public pension funds, hedge funds and money market funds, that could commit to buying large amounts of stock. According to some reports, Twitter may seek to complete its IPO by Thanksgiving, although the government shutdown could complicate matters and lead the company to postponing the share offering until next year.

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