Twitter executives will face a big challenge when they hit the road to convince investors that the company has long-term potential as it seeks to raise $1 billion in an initial public offering.
Financial analysts and investors on Wall Street and elsewhere are set to ask tough questions about Twitter's history of steep financial losses and its challenging future, when it will face what company officials acknowledge will be the difficult task of finding ways to keep its user base growing.
"The market is ready for Twitter," said Dan Olds, an analyst at Gabriel Consulting Group. "The question is if Twitter is ready for the scrutiny it's going to get. It will have to submit to the most thorough physical imaginable, which will be even more intense due to the Facebook debacle."
The financial losses and user retention issues are but two of 55 short- and long-term business risks listed by the company earlier this month in its pre-IPO S-1 filing with the U.S. Securities and Exchange Commission.
Twitter also has to face many potential investors who were burned in the aftermath of rival Facebook's IPO in May 2012. After an initial buying frenzy cooled, Facebook's opening price of $38 per share dropped by more than half in four months. It took more than a year for Facebook stock to regain its opening day price.
Facebook CEO Mark Zuckerberg weighed in on a possible IPO by his social networking rival at the TechCrunch conference last month. Asked to offer Twitter advice on how to navigate the IPO process, a laughing Zuckerberg told an audience, "I'm the last person you'd want to ask how to make a smooth IPO."
But Facebook's troubles might help Twitter. "I would certainly hope Twitter learned from the Facebook IPO debacle," said Patrick Moorhead, an analyst at Moor Insights & Strategy.
Analysts say Twitter executives should try to persuade Wall Street and individual investors to focus on the company's growth potential rather than its heavy losses -- $128 million in 2011, $79 million in 2012 and $69 million in the first six months of 2013.
They note that Twitter generated $317 million in revenue -- 85% from advertising -- in 2012, almost three times more than in 2011, and it values itself at about $9.7 billion, according to the IPO documents.
And Twitter may have found ways to get significant revenue from mobile users -- something that Facebook had trouble doing early on. Analysts say a lack of mobile sales was a major cause of Facebook's woes in its first year as a public company.
In its SEC filing, Twitter said that, in the first half of 2013, 65% of it advertising revenue was generated from mobile devices and three quarters of its "average monthly active users" accessed the site from mobile devices.
The $1 billion that Twitter hopes to raise from its IPO could help the company aggressively expand its business and make across-the-board investments in hiring, operations and acquisitions, analysts said.
The IPO is expected to be completed by mid-November.
Zach Miners of the IDG News Service contributed to this story.
This version of this story was originally published in Computerworld's print edition. It was adapted from two articles that appeared earlier on Computerworld.com: "Twitter's IPO Risks Include Ads, Users and Financial Losses" and " Twitter IPO Docs Show Rapid Growth, Steep Losses."