Twitter, soon to be TWTR on the New York Stock Exchange, is readying for its initial public offering (IPO) in a few weeks. As with many companies that have recently become public, there is a cloud of ambiguity looming over the heads of the public. There is much skepticism about the company’s ability to generate substantive returns for investors as Twitter’s profits until this point are perceived by many to be lacking. This is evident from a comparison of Twitter’s average monthly revenue per user at 73 cents with Facebook’s average monthly revenue per user of $1.60.
Twitter recently acquired MoPub, a mobile advertising business, in an attempt to expand ad revenues. What investors are finding out, however, is that MoPub is still in its infancy and is currently dwarfed by its competitors in terms of revenues. In the past six months, the company has only generated $6.5 million in net revenue as compared to $45 million by its main competitor Millennial Media. Perhaps one remedy for the low revenue streams lies within Twitter’s recent action to access the debt market. It seems that Twitter is attempting to mimic other social media companies by obtaining a $1 billion credit line that could possibly be used to help fund other acquisitions.
One of the other sources of uncertainty is the company’s lack of patents, according to a Friday to a Friday Bloomberg article. Its prospectus said the company has issued nine U.S. patents. This compares with the more than 700 patents that Facebook had just before it reached its IPO. Twitter likes having its engineers able to own their own inventions, but analysts and investors are worried about the possible repercussions. Patents can help analysts quantify the value of technological advances and are important for investor confidence. Twitter maintains that a larger patent portfolio will only subject the company to potential litigation in the future.
Twitter implemented the Innovator’s Patent Agreement, or IPA, in order for the employees who pioneer inventions to maintain the ownership of them. This also means that Twitter cannot enter litigation without the consent of the inventor. The idea behind this agreement is to attract the best engineers with the allure of keeping all of their innovations under their own name.
With the implementation of the IPA comes the risk of employees taking these innovations elsewhere. Jeff Sica, the president of Sica Wealth management LLC commented that “This is a radical way of dealing with patents, which is far different than anything investors have seen before.”
Many people argue that this method of dealing with intellectual property will hurt the company not only in the long run, but also in its IPO stage.
Peter Adriaens, an entrepreneurship professor at the University of Michigan said Teitter is aiming to raise $1 billion in the offering with a share price of roughly $20.62.
“The more IP is protected, the less infringement opportunity there is, and therefore, would increase the valuation,” Adriaens said.
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