The biggest mystery that will be solved when Twitter finally files its IPO papers with the SEC is: How much money does the company make in revenues?
So far, we have only estimates of just under $600 million for 2013 and an expected $1 billion in 2014. But those estimates aren’t from sources inside Twitter, and they’re old.
There is one way you can estimate Twitter’s revenues, and that’s by using Facebook’s (FB) metrics — plus some speculative assumptions — to reverse engineer Twitter’s comparable sales.
Here are my assumptions:
- Facebook and Twitter are actually very similar. They’re both social media businesses that sell their user data to advertisers. Advertisers can promote their ads (tweets) directly inside Twitter using Twitter’s Ads API interface. Or they can tweet for free — a bit like the way a business can operate a Facebook Page for free.
- Facebook has started an ad exchange, which is a type of tracking-cookie targeting common to the rest of the web. And Twitter just acquired MoPub, which gives it the adtech needed to build its own exchange.
- Both businesses make the vast majority of their revenue from advertising, not payments.
- Facebook is a much more mature business, of course. But still, the two companies compete fiercely. It’s not a coincidence that Facebook introduced Instagram video months after Twitter launched Vine videos.
Luckily for those of us interested Twitter, Facebook breaks down its revenue on a per user basis. Back when it first filed for an IPO, Facebook had 845 million monthly active users in December 2011, and $943 million in ad revenue. That means there was an average revenue per user from advertising of $1.12.
Twitter told us yesterday that the company has 200 million users. We’re not sure if those are monthly active users or not, but let’s assume they are, because other estimates have put Twitter’s total user base much higher.
If Twitter can get the same level of ad revenue per user now that Facebook did back when it filed for an IPO, then Twitter would have $224 million per quarter in revenue, or an annual run rate of $896 million.
That falls right within the estimates we’ve seen so far.
More importantly, for those of us wishing to judge whether Twitter is a better-run company than Facebook, it sets a baseline goal for Twitter’s IPO revenues.
Today, Facebook gets about $1.41 per user from advertising. That, for Twitter, is the stretch goal for a few years down the line. On a user base of 200 million it would give Twitter annual revenues of $1.13 billion.