How the @### is Twitter going to make money?
By now, you’ve heard that Twitter is filing for an IPO. The fact that the social-network filed wasn’t a big surprise but that it did it “confidentially,” that’s creating a buzz.
The social media site took advantage of a rule under the JOBS Act — that’s short for Jumpstart Our Business Startups — which became law in 2012. It’s a controversial rule because it gives investors less time to figure out what’s happening at Twitter, before it starts selling stock to the public.
If Twitter had taken the traditional path to filing its IPO, right now we’d be flipping through hundreds of pages of documents detailing its business. But instead we don’t know squat, says Steve Diamond, a professor at Santa Clara University’s School of Law.
“We don’t know how much revenue Twitter earns, we don’t know how much profit they earn, we don’t know how much money they spent. We don’t know what their plans are for the future,” he said.
Diamond says the idea behind the “confidentiality rule” is to smooth out the IPO process for emerging companies. And let them work out some of the kinks before pulling back the curtain.
Take Facebook, which took the traditional road to it’s IPO. It had to disclose that it wasn’t really making any money on mobile and it wasn’t sure it could.
“Their business model was running into problems as they were rolling out the IPO prospectus to investors,” Diamond said.
And that, along with a lot of other problems, made Facebook’s IPO really rocky. But Diamond says that may not be reason enough to move towards less transparency
Nate Elliott is an analyst at Forrester. He says it’s assumed that Twitter is making money but investors want to know how its going to grow.
“They have one primarily line of business at this point which is promoted tweets,” Elliot said.
Twitter charges companies to take their tweets and direct them to a bigger audience. And the word is that audience may not be expanding as fast should be. But those numbers? That’s right, we haven’t seen them either.
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