Traverse City Record-Eagle

Business

November 5, 2013

Challenges abound for Twitter

SAN FRANCISCO (AP) — Twitter has built a digital town square that’s teeming with activity but riddled with financial potholes. Seven years after co-founder Jack Dorsey sent the first tweet through the online messaging service, more than 500 million posts are shared each day by everyone from the Dalai Lama to Justin Bieber.

But all the chirping hasn’t translated to profits — nor is it expected to any time soon.

As Twitter prepares to complete its initial public offering of stock this week, the San Francisco company’s history of losses totaling nearly $500 million is raising questions about its ability to turn a cultural phenomenon into a sustainable business.

Twitter’s IPO promises to be another touchstone in the Internet’s evolution from a geeky backwater to a wellspring of world-changing innovation and jaw-dropping wealth. In that sense, the company’s stock market debut shares parallels with the IPOs of two rivals: online social networking leader Facebook Inc., which went public nearly 18 months ago, and search engine leader Google Inc., which made the leap to Wall Street in 2004.

But Facebook and Google were already profitable by the time they went public. By contrast, Twitter’s coming out is a throwback to the late 1990s, a more perilous time in Internet investing — when hundreds of dot-com companies completed IPOs without ever having earned a profit.

“They have a nice and interesting base to build upon, but an exciting business with lots of users doesn’t necessarily generate returns,” says James Gellert, CEO of Rapid Ratings, a subscription service that examines the financial health of companies.

Rapid Ratings gives Twitter’s financial fitness a rating of 19 on a scale of 100. Gellert says that between 1991 and 2011, 90 percent of companies that defaulted on their debt received a rating of 40 or below. By comparison, the firm rated Facebook at 73 just before its May 2012 IPO and Google at 80 ahead of its August 2004 offering.

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