On the 12th of September 2013, clinic Twitter announced it was finally ready to spread its wings. A tweet of 135 characters announced one of the year’s biggest financial stories: Twitter was filing for an IPO.
A not so public IPO
However, much like Twitter’s character limit, the information on the IPO is limited. Last year US Congress passed the JOBS act, allowing companies with less than $1bn in revenue to file their IPO prospectuses confidentially.
The benefit from Twitter’s perspective is that the burden of expectation is now reduced and the company can hide its numbers and blue print from competitors for that much longer.
From an investor’s standpoint, the lack of scrutiny Twitter will receive pre-IPO will be worrying. Two years ago, the attention Groupon received regarding its accounting practice proved a useful warning to investors, given its later problems. Another concern for investors will be that the JOBS act abolishes regulations which were put in place following the Dot-Com boom a decade ago. This could potentially raise the curtain for an encore.
From Twitters perspective, all the hype and interest surrounding the IPO is a mere distraction. Facebook’s infamous IPO last year is now a forgotten part of their history. One look at the company’s recent earnings report eases any fears that arose from that event. Like Facebook, potential investors in Twitter will be more concerned about the business rather than the IPO. If the business is self-sustaining and has growing profits, the IPO is just a sideshow. Whether or not Twitter’s business proves to be sustainable is another issue.
An initial look at data compiled by research company eMarketing suggests that, from an investors point of view, Twitter is indeed an attractive proposition. Due to the speed of mobile adaptation, a social networks ability to make money from mobile advertising is key. The fact that by 2015 Twitters net mobile revenue will be an estimated $811m, a 5x increase from 2012, is encouraging.
The recent purchase of MoPub, for between $300m-$400m, to help automate ad buying, will also please potential investors.
Despite having over 300m users and an estimated value of between $10bn and $15bn, Twitter’s IPO, and the hype surrounding it, will not be on the same scale as Facebook’s. With over 1bn users and valued at over $100bn, Facebook is unquestionably the larger of the two. In a given month, Twitter will on average attract 15.1% of US internet users. In comparison, Facebook will attract 60.3%.
However, investors will not be deterred by such facts and figures. Generating users is not the hard aspect of building an internet business. Just take MySpace, Geocities, or any other fast growing companies which failed to make money from its audience as examples.
User Concern (Concern of the Tweeps)
The company is currently rumoured to be redesigning its mobile apps in an attempt to attract more mainstream users in the run up to the IPO. Twitter will now be under increasing pressure from investors to optimise the company’s value, whether or not this comes at the users expense remains to be seen.
As a result of their confidential IPO filing, aside from their 135 character tweet, no other factual information is available at the moment. Whether or not limiting the public’s access to information will be beneficial or not remains to be seen. Instead of facts, all the media has to report on is speculation, which could turn out to be more damaging to the company due to the high profile nature of this IPO.
Regardless, it is an interesting time for the company. Five years ago Facebook attempted to buy Twitter for $500m, today it is valued at as much as $15bn. Who knows what the future holds.