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Twitter releases IPO prospectus, exposes long run of financial losses

Twitter lost a whole mess of money in each of its past three fiscal years and is on pace to lose a lot more in 2013.

That's probably the most headline-grabbing detail to emerge from the company's Form S-1 registration statement filed with the SEC and published this week ahead of an initial public offering that could happen as soon as late October.

The prospectus has plenty more in it — the document is 164 pages long with scores of additional pages of financial statements and more — but as Twitter embarks on its pre-IPO investor roadshow, you can imagine the micro-blogging site's inability to turn a profit thus far will be a major question.

Twitter, we now know, had a net loss of $67.3 million (£41.6 million) in 2010 on revenue of just $28.3 million (£17.5 million). The good news is that even as the company's monetary losses piled up in succeeding years, so has the revenue — at least to the point that Twitter wasn't losing more than double what it was pulling in, anyway.

To wit, in 2011, Twitter had revenue of $106.3 million (£65.7 million) and lost $128.3 million (£79.3 million). In 2012, revenue was $316.9 million (£196 million) and the net loss was $79.4 million (£49.1 million). In the first six months of 2013, Twitter has already hauled in $253.6 million (£156.8 million), putting it on pace for its biggest revenue year ever. Unfortunately, the company's also on pace for a record loss, with minus-$69.3 million (£42.9 million) already on the books.

By comparison, The Wall Street Journal noted that several other prominent social media companies like Facebook, LinkedIn, and even Zynga had decent track records of turning a profit at the time of their IPOs.

Even as the losses keep piling up, Twitter looks to value itself in the neighbourhood of $10 billion (£6 billion) or even higher, according to the newspaper.

Some of the risk factors of Twitter's business which the company dutifully outlines in its prospectus also might make investors pause. For one thing, prices for ads on Twitter have been falling, which is a concern given that ad sales generate about 85 per cent of the company's revenues, with the licensing of data to third parties making up the rest. And the growth of the company's user base is slowing, which is natural over time given the size of that user base, but could still raise some red flags.

Twitter has about 215 million active users who generate the bulk of the 500 million tweets broadcast by the micro-blogging service on a daily basis. In terms of the sheer size of its user base, that puts Twitter in rare company, looking up at Facebook and not too many others. But like Facebook did during its own IPO lead-up, Twitter will surely face questions about how it plans to increase its revenue-per-user, especially if it turns out there's a ceiling to how many more users it is likely to add.

And one more problem area for Twitter might be that it's not as worldly as you might imagine. Three quarters of Twitter's regular users live outside the United States, but as the Journal noted, three-quarters of the company's ad revenue comes from within the US. Like Facebook, Twitter faces an uphill battle in better monetising huge portions of its user base.

Stay tuned for more on Twitter's upcoming IPO as we dig deeper into the company's prospectus, which you can see here.