Late last week, Bloomberg reported that Twitter expects to hit $1 billion in revenue by 2014, at least two years earlier than analysts had projected. The projection was attributed to two unnamed sources. And it includes the mother of all hedges: “The San Francisco-based company could change or miss the forecasts, the people said.”
So, it might. Or, it might not. Uh, thanks.
But what really bothers me about the coverage is that it lacks some basic business journalism 101. That is, no one ever seems to ask: What about expenses?
Who knows? But again, nobody ever seems to ask and anonymous sources are no doubt less anxious to discuss it. But that’s what I really want to know: Are your revenues growing faster than your expenses? Absent an answer to that, the amount of revenue (even projected revenue) is meaningless.
Still, here are some things to consider about Twitter’s sustainability.
Twitter is still a relatively small company. It has less than 1,000 employees. It’s moving into a new office this summer in San Francisco that will give it significant room to expand. It probably needs a lot more folks across the board to deal with engineering challenges and design issues and new products and the business side.
By comparison, Facebook has grown from 2,431 employees as of March 31, 2011 to 3,539 as of March 31, 2012. That is also a relatively small headcount, by the way.
We can also assume that Twitter will have to continue to increase spending on infrastructure, data centers, etc. to continue to become reliable enough that users and advertisers can count on it being there when they need and want it.
Let’s look again, for a moment at Facebook. By the time it hit $777 million in revenue in 2009 it had expenses of $515 million. And when it hit $1.97 billion in revenue in 2010, it had $942 million in expenses.
Facebook and Twitter are different businesses and different technologies, of course. But still, it’s worth noting that relatively speaking, Facebook has low expenses. I think we can assume that’s basically true for Twitter. And that means that if the company does hit $1 billion in revenue in two years, and headcount has about doubled to 2000 employees, there’s a good chance that the company would be in the black.
Still, it’s worth being extremely skeptical the timing of this leak, coming on the heels of the Facebook IPO, and word that the social network had lowered its revenue projections for this current quarter. In the aftermath, I asked on Twitter:
After a week of Facebookpocalypse, wondering what it means for Twitter? If people think FB’s biz is so shaky, isn’t Twitter in worse shape?
— Chris O’Brien (@obrien) May 26, 2012
The Pew Foundation recently released a study raising questions about whether Twitter’s growth was slowing, noting that it’s penetration among adult users had grown from only 13 percent to 15 percent over the past year. And as the Bloomberg story says way down at the bottom:
“While the company’s ad service may be improving, EMarketer in September reduced its estimates for revenue because of slowness in rolling out the self-serve ad platform that was announced earlier this year. EMarketer had earlier predicted revenue of $150 million instead of $139.5 million.”
So again, word that revenue may (or may not) be accelerating seems to be an attempt to reassure folks that yes, there is a business here. I hope there is. But it’s likely going to be several years before we learn the real answer to the question of whether Twitter can build a business to sustain itself. As I wrote in a column last weekend, the jury remains out when it companies to the general question of whether social media companies can also be great businesses.