After an October where IPOs dominated the marketplace, 33 companies went public raising over $12 billion; we are set for another hotly anticipated offering this week…#Twitter.

Twitter has made terms such as “handle” and “hashtag” common in our every day vocabulary. The company has taught people to shorten their thoughts to just 140 characters and it is now an outlet for people/news sources to report breaking news.

Twitter is set to be the biggest tech IPO since Facebook, as the company looks to raise nearly  $2 billion. Despite the company being well known and many people view the site/application on a daily basis, the question is does it have the ability and leadership to stay up with Facebook and innovate revenue streams better than Facebook.

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Time will tell on these questions, but looking at recent financial information on the company shows that they have had a tough time generating profits. This can be expected of a young and growing company.

Twitter has shown an ability to generate revenues from mobile, which is something that Facebook had to overcome after going public. Seventy percent of Twitter’s revenues are from mobile ads. In 2012, Twitter lost $79 million on revenues of $319 million. In 2013, so far (nine months) the company has a net loss of $133 million on $422 million in revenues. And since 2010, the company has accumulated losses totaling $483 million.

Although we can’t base the whole future investment in Twitter on past profits/losses (the valuation is based on future revenues/cash flows), we can get a pretty good understanding of the struggles the company may face.

They continue to have high fixed expenses and with a workforce of over 2,300 (and expected to continue growing), they will likely see these fixed expenses continue to rise. Also, with having the mobile ad side somewhat figured out, they are ahead of the game relative to most of their peers. But the question then comes, where are they going to boost future revenues from?

Twitter will need to continue showing the extra benefit their ads provide to companies to allow them to increase prices or the company must find a way to boost the number of ads they can fit on the mobile side. All of these options could lead to a less user friendly experience which is a constant debate amongst this new breed of tech companies.

Twitter isn’t likely going anywhere as there is too much intangible value in the company’s brand, but this doesn’t mean it will turn out to be a profitable investment at the current time. It took Facebook over 14 months to pierce through its IPO price and I would expect the same, if not longer, to be true for Twitter.

The company needs to show an ability to generate a profit, while also showing an innovative knack for finding more revenue streams. #TwittersChallenge

(All data used within The Capital Course was provided by Ned Davis Research)