As Twitter’s IPO arrives, there’s concern about its flood of red ink - The Buffalo News

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As Twitter’s IPO arrives, there’s concern about its flood of red ink

NEW YORK – It can help overthrow dictators. But can it make money?

Protesters famously used Twitter to organize during the Arab Spring three years ago. President Obama announced his 2012 re-election victory using the short-messaging service. Lady Gaga tweets. So does the pope.

But for all its power and reach, Twitter gushes losses – $65 million in the third quarter, nearly three times more than it lost a year ago.

As Wall Street analysts size up Twitter ahead of its first public stock sale this week, more than a few are expressing concern about the company’s lack of profits.

Those misgivings are echoed by average investors. About 47 percent of Americans believe that Twitter won’t be a good investment, according to a recent Associated Press/CNBC poll.

Of course, a company’s losses before its initial public offering are no indication that its stock will do poorly. had big losses before it went public, yet its stock has gone up by more than 18,000 percent since the IPO.

Even so, future Twitter shareholders poring over the company’s more than 200-page IPO document are being asked to take a leap of faith. The document never makes clear when the company will sell enough ads to stanch the red ink and deliver profits.

What’s Twitter’s sales pitch to investors? “They’re taking you to the edge of a swamp and saying, ‘Someday, this is going to be paradise,’ ” says Anthony H. Catanach Jr., a professor of accounting at Villanova University.

Pessimists who have gazed at that swamp believe that Twitter is going public too soon but can’t resist exploiting a market in which investors are eager to look past losses as stock prices soar. Optimists refuse to believe that a company that has turned itself into a worldwide water cooler in just seven years can’t make big money – at least someday.

“Twitter is in its infancy, and it’s a site a lot more people will go to,” says Michael Pachter, an analyst at Wedbush Securities. “They’ll figure out how to sell advertising.”

Many money managers seem to agree. In a reflection of high demand for the stock, Twitter on Monday increased its expected IPO price to $25 per share, up from $20.

Twitter is allowing television advertisers to grab the attention of people who are using Twitter to engage in running commentary on the shows they’re watching.

Debra Aho Williamson, an analyst at eMarketer, sees plenty of opportunity for Twitter to shake up the ad world. She muses about a future in which you tweet that you’re hungry for a particular snack, and Twitter sends you a coupon and directs you to a store nearby.

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