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3 looming risks for Twitter
Twitter's IPO paperwork has 32 pages of potential "risks." Here are three of its biggest concerns.
 
Too unstable?
Too unstable? (Frank May/dpa/Corbis)

When a company files for an IPO with the Securities and Exchange Commission, it is required to list the risks of running the business, so potential investors fully understand what they're getting into.

Twitter's IPO paperwork — filed yesterday after months of anticipation — features an extensive 32 pages of risk factors. Facebook, by comparison, had just 20 pages. (Facebook famously botched this section, understating the company's weakness in mobile advertising.)

Here, Twitter's greatest challenges:

1. User growth is slowing
Twitter has 215 million monthly active users, compared to the 815 million monthly active users Facebook had at the time of its filing, and there's "some evidence of stagnation," for Twitter, says Derek Thompson at The Atlantic. The company has only added 15 million new users since late last year.

One of the problems seems to be that the company's ability to both add new users, and get them to engage, relies on factors that are outside the company's control. For example, Twitter activity lights up during certain unpredictable events, like natural disasters and political revolutions. The company also can't predict "breaches of security of privacy" that could make the product appear less trustworthy. Spam could also make Twitter less attractive, and corrode growth.

Another potential problem is unexpected interruptions in internet service. Twitter says:

Our business depends on continued and unimpeded access to our products and services on the Internet by our users and advertisers. If we or our users experience disruptions in Internet service or if Internet service providers are able to block, degrade or charge for access to our products and services, we could incur additional expenses and the loss of users and advertisers. [SEC]

2. Facebook and Google are formidable competitors
The fact that Twitter's biggest competitors are two of the most recognizable brands in the world also poses a challenge for the company. Twitter lays it out like this:

Facebook operates a social networking site with significantly more users than Twitter and has been introducing features similar to those of Twitter. In addition, Google may use its strong position in one or more markets to gain a competitive advantage over us in areas in which we operate, including by integrating competing features into products or services they control. As a result, our competitors may acquire and engage users at the expense of the growth or engagement of our user base, which would negatively affect our business. [SEC]

3. It's not yet profitable
From a revenue standpoint, Twitter isn't on its feet quite yet. Trying to generate income from social media engagement is still a relatively new challenge for everyone, so the company is not totally secure in its "ability to attract and retain advertisers."

Twitter says:

Since our inception, we have incurred significant operating losses, and, as of June 30, 2013, we had an accumulated deficit of $418.6 million. Although our revenue has grown rapidly, increasing from $28.3 million in 2010 to $316.9 million in 2012, we expect that our revenue growth rate will slow in the future as a result of a variety of factors, including the gradual slow down in the growth rate of our user base. [SEC]

 
Carmel Lobello is the business editor at TheWeek.com. Previously, she was an editor at DeathandTaxesMag.com.

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