Twitter offering creating excitement

The initial public offering of Twitter closed early after investor demand. Photo by Reuters.
The initial public offering of Twitter closed early after investor demand. Photo by Reuters.
Investors saw social media and mobile as sweet spots and it was no surprise Twitter's initial public offering had created so much excitement and was oversubscribed, Ovum principal analyst Eden Zoller said yesterday.

Twitter is expected to list in the United States tomorrow, New Zealand time, and the company's valuation just ahead of the listing stood at $US17.4 billion ($NZ20.8 billion) - at the upper end of expectations.

Mr Zoller said the value was high given Twitter was still not profitable and had a much smaller user base than Facebook did at the time of its IPO.

''It is critical for Twitter to move quickly and effectively post IPO to address the challenges it faces in achieving growth and profitability. Twitter needs to step up and deliver on the expectations fuelling its valuation and show it has what it takes to provide a sustainable business model.''

The two foremost challenges Twitter needed to address were linked, he said. They were how to keep users engaged while driving advertising revenue.

To achieve those objectives, Twitter needed to innovate in both services and format but the format constraints making Twitter such a dynamic and immediate service also limited its ability to innovate, compared with a much broader platform like Facebook.

Twitter had a difficult balancing act where it must introduce new advertising formats into the Twitter stream without compromising the user experience. If it failed to get it right, Twitter would jeopardise user engagement and with it, advertising spend, Mr Zoller said.

Investing in new service and advertising features would also push up costs which, if not carefully controlled, would further affect Twitter's ability to generate profits.

Twitter must also build advertising revenues as a matter of urgency outside of the United States. About 77% of Twitter's user base was outside of the US but advertising was not keeping pace with only 26% of advertising revenue generated from international markets.

''We expect to see continued strong growth in Twitter's international use base and it literally cannot afford not to monetise this base,'' Mr Zoller said.

Ovum is an Australian business and technology analysis company.

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