NEW YORK: Investors willing to bet on Twitter Inc will have to overlook mounting losses and slowing user growth -and have faith that the eight-year-old Internet messaging company can transform a household name into advertising dollars.
Fund managers who were optimistic about Twitter's financial prospects shrugged off its latest US$65 million (RM204 million) quarterly loss as standard for startups chasing growth, pointing instead to revenue growth that more than doubled.
But others warned of the risks of investing in a company with a management that has yet to prove it can generate a profit.
"It's worth having exposure to a name like Twitter, although you have to take a conceptual leap of faith with regard to valuation, and say it's a unique franchise that isn't likely to go away," said Karl Mills, president and chief investment officer for private investment adviser firm Jurika, Mills & Keifer in San Francisco.
"Like Twitter, Amazon was in investment mode for a long time. They still are, so that doesn't worry me."
Twitter's latest initial public offering (IPO) filings showed its net loss in the September quarter tripled to almost as much as it lost in all of 2012.
As Twitter races toward the year's most highly anticipated tech offering, memories of Facebook Inc's disappointing 2012 debut threaten the eight-year-old online messaging service's own splashy coming-out party.
Like Facebook, Twitter enjoys strong brand recognition, which typically translates to outsized retail investor interest.
That was one of the reasons Facebook was able to raise its IPO price to US$38 a share, from an initial range of US$24 to US$35 a share. That gave the company a valuation of about US$100 billion, or about 99 times its 2011 earnings.
Facebook shares promptly plummeted on their first day of trade. They didn't regain their IPO valuation until more than a year later, in August of 2013.
Twitter, which is expected to go public in November, has yet to determine pricing, but investors say it might come under pressure from financial backers to go high. Analysts expect the company to seek a valuation of at least US$10 billion.
Unlike Twitter, however, Facebook and professional social network LinkedIn Corp both were profitable when they debuted. Twitter's still cloudy outlook makes some investors nervous.
"I want something to be generating income. If they can't make the transition from capturing market share to generating income, they're going to run out of money eventually," said Brian Frank, portfolio manager for Frank Capital Partners in New York.
Twitter's fledgling advertising model is centered around the "promoted tweet" and massive marketing campaigns built around television-viewing. The promoted-tweet tactic has since been replicated by rivals like Facebook. Reuters