Twitter Puts Numbers to Its I.P.O. Talk

Millions of users seem to believe that Twitter has value.

Now investors can start to make that call, too.

To kick off the process of selling its shares to the public, Twitter released on Thursday a filing that, for the first time, gives outsiders hard numbers about its business. Investors will now pore over these to assess the company’s financial performance.

Twitter’s initial public offering comes at an auspicious time. Investors are once again keen to place highly optimistic values on social media companies. After a difficult first year on the stock market, shares of Facebook have soared as the company found its feet and posted resurgent revenue figures. In this climate, Twitter’s bankers will probably feel they can persuade investors to accept a high valuation. Based on sales of shares in the private market earlier this year, Twitter effectively estimated its own value at $9.7 billion, according to disclosures in the public offering documents.

But Facebook’s initial stumbles reveal the dangers of assuming that everything will go smoothly. And investors ought to be careful about assuming that all big social media companies will do well on the stock market, some investment specialists said. Competition for advertising dollars â€" the main source of revenue for these companies â€" could intensify in the coming years, they said.

“Are there going to be enough dollars out there to justify these valuations?” asked Moshe Cohen, an assistant professor in finance and economics at Columbia. “Or will there be winners and losers?”

Most of the debate about Twitter’s valuation will focus on projections of future sales and earnings. Such forecasts typically do not appear in regulatory public offering filings. Even so, the numbers in the filing will prove valuable to investors, who have so far had to rely on guesswork. In the 12 months through the end of June, Twitter had revenue of $450 million, two-thirds of which came from advertising. During that period, Twitter recorded a net loss of a little more than $100 million. That loss figure includes a lot of noncash expenses, like the stock it pays to employees. In the first six months of this year, Twitter’s operations had positive cash flow of $10 million.

Such figures suggest that investors who have already purchased Twitter shares on the private market are willing to attach stratospheric valuations to the company. The $9.7 billion figure in the Twitter prospectus is equivalent to 22 times the sales that the company posted in the 12 months through June. Such a valuation is high, even for a young technology company.

Of course, investors are expecting Twitter’s business to grow rapidly. One common approach toward Twitter among analysts is to apply Facebook’s valuations. Facebook’s stock market value is 12 times the amount of sales that analysts expect the company to achieve next year. Some expect Twitter to reach $1 billion in sales next year. If the company were to trade at 12 times that estimate, it would be worth $12 billion. Some analysts will probably argue that Twitter is growing faster and therefore deserves to trade at a higher multiple of sales, which could push up Twitter’s stock market value. For instance, in the second quarter of this year, Twitter doubled its revenue from a year earlier, compared with a 50 percent increase at Facebook.

There are reasons to be cautious of this approach, however.

Facebook has earned its valuation by racking up strong earnings in recent quarters. But Twitter has yet to prove itself as a public company. Facebook has managed to attract advertisers onto its mobile service. Its cash flows are enormous.

Twitter is also a fraction of the size of Facebook. Twitter’s 218 million monthly average users are a mere 20 percent of Facebook’s 1.16 billion users. Twitter said it had “more than 100 million” daily users. Notably, it didn’t supply historical figures for that metric, preventing outsiders from tracking its performance.

Twitter’s $140 million of revenue in the second quarter was only 8 percent of Facebook’s $1.8 billion in the same period.

Another important figure is the amount of revenue that a social media company takes in for each user. Facebook earns about $1.60 for each user. An analysis of Twitter’s figures suggests revenue per user of 64 cents.

In the coming weeks, as Twitter markets its shares, investors are going to press the company for details on how it intends to increase its revenue. In the filing, the company highlighted an intriguing metric on advertising. In the second quarter, Twitter said it generated United States advertising revenue of $2.17 for every 1,000 times that users are active on their Twitter feeds. That compares with just 30 cents in the rest of the world. Skeptics will say that shows that Twitter is having trouble generating revenue in countries where it has large amounts of users, like Japan and Indonesia. But optimists will argue that the low figure suggests that Twitter has much room for growth.

Right now, uncertainty about the future is likely to feed bullishness about Twitter’s prospects. But that sentiment could just easily give way to stock-crushing doubt at the first sign of underperformance. In the social media world competition can appear very quickly. Mr. Cohen, the Columbia professor, points to Pinterest or Snapchat as potential threats.

“We’ve seen new entrants, and these guys grow fast,” he said.

In a commencement speech earlier this year at the University of Michigan, Dick Costolo, Twitter’s chief executive, told graduates, “Don’t always worry about what your next line is supposed to be.”

“There is no script,” he added. “Live your life. Be in this moment.”

With its numbers now in the public eye, Mr. Costolo cannot count on investors to be as relaxed.