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Twitter's IPO an Investment in Constant Change

Tickers in this article: AAPL AMZN FB GOOG

NEW YORK ( TheStreet) -- Amazon , Google and even Facebook have far different business models from when they each went public, and those considering the shares of Twitter should expect the same as the micro-blogging site looks to sell $1 billion in stock to public investors.

Twitter's IPO documents, released late on Thursday, paint the picture of a fast-growing media powerhouse that sits at the confluence of news and advertising. While the San Francisco-based company now boasts annual revenue that is likely to exceed $500 million this year , cash flow and profits on a measure of adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), Twitter's business model nevertheless faces tremendous uncertainty as a stock listing looms.

The company generates 87% of its revenue from advertising on its network and, in particular, three sources: Promoted Tweets, Promoted Accounts and Promoted Trends. Advertisers are clearly interested in the platform. Twitter said in its IPO filing that its advertising sales have grown to $221 million in the first six months of this year from just over $7 million for all of 2010.

Such advertising sales may grow significantly in coming years, helping Twitter to scale to a point of profitability as Google, Facebook and LinkedIn have all done since their respective IPO's.

Still, potential Twitter investors shouldn't just vet the company's IPO documents for growth rates and a picture of its current financial state. They should also think about how and where Twitter will evolve in coming years.

Tech Precedents

Google, Amazon and Facebook all are proof that IPO filings only say so much; it is what comes after the share sale that matters most for investors. After all, IPOs are intended to raise equity capital that firms use to scale their businesses and expand into new products.

In that sense, Twitter may be in a far better position than its current finances and disclosures indicate.

Google went public in 2004 proclaiming that it was a superior Web search and advertising product to Yahoo! and a swath of little-remembered competitors such as Lycos, AskJeeves and NetScape. The company raised $1.67 billion in new capital in a listing that valued Google at over $27 billion dollars. Nearly 10 years later Google has a $291 billion stock market capitalization and dozens of new products to compliment its still-dominant Web-search business.

Just a few years after Google's IPO, the company bought Web-video sharing site YouTube in a deal that was panned as expensive at the time, but that may go down as one of the great merger and acquisition values of the 21st century. The company also bought Android, a fledgling mobile operating system for $50 million in 2005 and it is now in the process of acquiring mobile sensor start-up Waze Communications .