Would you invest in Twitter shares?

Does news of the loss-making platform's planned IPO make you reach for your broker's number, Mark Banham asks.

Next week, Twitter is expected to start promoting its anticipated $12.8 billion initial public offering to Wall Street. With the flotation handled through the New York Stock Exchange, rather than Nasdaq – which arguably dropped the ball during Facebook’s IPO – Twitter is believed to be seeking out the more traditional investor (old money for new tech) as well as wealthy hipsters.

So, what does one of the world’s most-talked-about web services have to offer? It currently has more than 550 million users worldwide (with 135,000 new ones signing up every day) and 190 million unique visitors a month, while  an average of 58 million Tweets are sent every day. However, Twitter is still to make a profit.

In the UK, where the eight-year-old service has more than 15 million users, Twitter employs about 70 staff – half of them working in direct sales – led by the managing director, Bruce Daisley (the former YouTube director).

Last week, Twitter split out financial figures for the first time, revealing the UK to be the largest market for sales outside the US with £27 million in ad revenues for the first nine months of 2013. International (non-US) revenues also grew significantly, quadrupling to $106.7 million as new targeting options for Promoted Tweets paid off. Meanwhile, US revenues rose 78 per cent to $315.5 million.

Despite the growth, pre-tax losses nearly doubled to $132.4 million as Twitter counted the cost of heavy investment. Critics also continue to question how easy it is going to be to "monetise" the site to satisfy investors’ demands. Some, including WPP’s Sir Martin Sorrell, have called it "primarily a PR medium", an effective word-of-mouth channel that lacks depth and which brands interrupt at their own risk.

Meanwhile, questions around return on investment for advertisers continue to be asked.    

Twitter’s future, then, will be about trying to find how much advertising users will tolerate in their timelines (and, as Twitter is a predominantly mobile experience, sensitivity to interruptions is particularly acute).

So, ahead of the IPO, and amid all the hype, would you buy shares in Twitter?

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