When Twitter starts to fly, watch out for big birds waiting in the sky

Investors will want to know more about its plan to survive the next new trend
  • @indyvoices

The big question to tweet about the upcoming flotation of Twitter is not about whether the shares will fly but where the bird will land after taking flight as a public company. For now, Twitter has all the hallmarks of a killer float: it's still the most hip of the social media, advertisers love it and ad revenue is doubling. Just to be really cool it's also losing money – lots of it. In its latest filing with the US Securities and Exchange Commission, Twitter says that while revenue increased to $317m (£198m) in 2012, from $106m in 2011, it lost $69 million in the first six months of this year – nearly as much as last year's total of $79m.

Potential investors don't seem bothered because Twitter is defying gravity with the fastest rate of growth in ad revenue of all the social media groups. Revenue is set to double this year to more than $582m, and while tiny compared with Facebook, Twitter has shown cunning in building up its mobile advertising – the holy grail for advertisers. About 65 per cent of its ad revenue comes from tablet computers and smartphones, and revenues should reach $807m next year.

The number of tweeters is soaring as well: there are now 218 million monthly tweeters, up from 85 million this time last year, making 500 million registered users with around 340 million daily tweets. That's power.

Yet tech analysts worry that the ad growth could turn out to be Twitter's Achilles' heel – that it becomes a victim of its own success. More advertising on Twitter translates into more money, but the more ads there are, the less attractive the service may turn out to be for users. As already seen, there is the potential for infringing on personal privacy, while governments – like the Turkish administration – want to ban it because of its political clout.

But if Twitter were to hold back on advertising, it would get lower rates – and that wouldn't be good once its shares are trading on Wall Street, with investors snapping at its heels wanting more.

Getting the balance right will be challenging for the chief executive Dick Costolo, pictured, considering the company's reputation as a force for good. The former stand-up comedian has shown he's not shy about making money – he has linked with the advertising giant WPP to share market intelligence and last week bought the tech start-up MoPub, the maker of software for advertisers to bid on social network mobile ad slots in real time. Amazon is the company he admires most and look how that retailer is raking in the ads.

Twitter is being careful with the listing, aiming to raise $1.5bn, and in the short term it looks a tasty bite. But the more fascinating, if not ironic, issue is how the growth of social media, and other "intelligent agent" companies that scrape the net for data, will come to affect all investment decisions. You only have to look at what IBM is doing with its Smarter Planet work on analytics to see how there will soon be engines that dynamically monitor data and suggest investments based on surfing the net. These new creatures will change the face of investment in a way that neither markets nor governments have yet foreseen.

In the same way that WPP wants Twitter's intelligence, so big beasts like IBM or Microsoft might want to swoop in and gobble up the little blue bird before it proves it can fly solo. Long-term investors will want to know more about Costolo's plans to survive the next new trend and depend less on advertising. No wonder he's looking at increasing Twitter's 140 characters.

Apple should tell the activist to stuff it but reward investors

Here's an example of Twitter's power. The share activist Carl Icahn caused ripples way beyond his power when he tweeted last week that things had got "testy" with Apple's chief executive, Tim Cook, after he demanded that Apple borrow $150bn to buy back its own stock.

Mr Icahn has about a quarter of a per cent of Apple's shares – about $1bn worth – so the noise he stirred was far greater than his potential to make trouble. However, he is on to something as the shares rose 2.4 per cent to $488 on the tweet. He's right that Apple is still ridiculously cheap but wrong about the recipe; stuffing Apple with borrowings is simply daft. So Mr Cook should tell Mr Icahn to stuff it but he should pay back more to investors in dividends and sort out its tax affairs. Who knows, maybe Apple should be the one to go for Twitter?