Twitter IPO

Will Twitter Follow Facebook?

By Justin Williams
Monday, September 16th, 2013

Last Thursday, Twitter officially announced it had filed an initial public offering (IPO), and it let us all know about it with a little tweet of its own.

Whether you’re active on Twitter or not, the social media bonanza is inescapable. With 140 characters or less, we are all given the power to say exactly what is on our minds in real time. You may see it as a blessing or a curse, but it’s like nothing ever seen before.

twitter stock marketThe wheels were set in motion last year when Twitter completed acquisitions to distribute the power of its tweets. That’s when we knew an IPO was imminent.

This is the most anticipated IPO to hail from Silicon Valley since its good pal Facebook (NASDAQ: FB) started on its wild journey after going public in May of last year.

The company is valued between $9 to $10 billion, according to USA Today, but with an IPO worth roughly $26-$28 a share, that value could be more like $14 billion.

Twitter was most likely forced to file an IPO because of its number of private investors. Regulations included in the Jobs Act passed in 2012 require any company to file if it has more than 2,000 investors.

Twitter will follow the likes of other social media platforms Facebook and LinkedIn (NYSE: LNKD), valued at $108 billion and $32 billion, respectively.

The Report

The company submitted its S-1 for a planned IPO in confidentiality. A new rule enacted by the Securities and Exchange Commission as part of the Jumpstart Our Business Startups (JOBS) Act, according to USA Today, allows a company with less than $1 billion in revenue annually to be able to submit a confidential IPO filing with regulators.

It is believed Twitter's revenue for this year will be between $500 and $600 million, and by next year it will hit the $1 billion mark.

An IPO will typically take three to six months, but Twitter could effectively be public as soon as next month, barring any problems along the review process.

From there, it’s up to Twitter to show us all why we should become investors and just how the company plans to make its money.

Will it take cues from Facebook by subtly adding even more advertisements to its pages? Would it start charging consumers? These answers will unfold in the coming months.

Twitter has already shown signs that it is willing to toy around with its system. The company has added what are called “Twitter Cards,” which allows tweeters to use pictures and videos on the site. Companies are using this to create different ad campaigns.

Twitter has also turned to television, but with lackluster success.

The point is, the company is willing to move the pieces around until it finds the right business model. We just don’t know what that formula will be yet.

Tit For Tat

Naturally, the first thought for many of us as we heard the news last week was to draw comparisons to Facebook, but the were are in starkly different places at the time of filing. And even Facebook has turned its plummeting shares around more than a year later.

Facebook founder Mark Zuckerberg will tell you that the fears and pressures of filing for IPO got the best of him.

But he’ll also tell you that those same failures made his company stronger than ever before. Now, Facebook is geared more toward your mobile device, and business has transitioned to a better place.

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You all remember the hoopla that surrounded Facebook when it went public. It’s just not the same for Twitter, and the company is getting out of the gate much faster.

The amount of hype worked against Facebook and its valuation, as it doubled from $50 billion to $100 billion in only a year – it was out of control. Twitter is a much more modest ballpark figure at less than $20 billion.

The two companies also sit at different revenue stages. Twitter filed with under $1 billion as part of the JOBS Act. Facebook was well on its way to quadrupling that by the time it filed its IPO.

At the end of the day, Twitter has more room for growth, and that’s what the guys on Wall Street like to see.

High Expectations?

You know it. Goldman Sachs (NYSE: GS) will be the lead underwriter for the IPO. In the past, as Forbes points out, Morgan Stanley (NYSE: MS) has taken on the tech giants, but it saw botch jobs from Facebook, Groupon (NASDAQ: GRPN), and Zynga (NASDAQ: ZNGA).

Twitter's exchange is still unknown, but it very well could steer away from others who went with Nasdaq. The exchange paid a $10 million penalty for the way it handled the Facebok IPO.

Linkedin has become one of the hottest of these tech stocks, while Groupon – finally starting to make a comeback – has sputtered ever since its first day in 2011.

The main concern with Twitter right now is just how it will make its money. Today, it isn’t making nearly as much as Facebook.

But the potential is huge. People turn more and more to their cell phones, and social media has become second nature for many of us.

If you do tweet, get used to seeing some changes. And if you don’t, you should at the very least take a good hard look at its potential down the line.

 

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