Twitter hopes to learn from FB's IPO mistakes

by Sohini Bagchi    Sep 16, 2013

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As Twitter prepares for its much anticipated initial public offering (IPO), there’s immediate speculation by investors and analysts on the company’s ability to sustain its rapid pace of expansion. On one hand, some are apprehensive whether Twitter is going to learn from the follies of its rival Facebook that went public in May 2012, and promptly bombed, on the other analysts are confident that the San Francisco-based social media organization already has the right strategies in place before taking such a forthright decision, albeit many of its plans were secretive.

Twitter vs. Facebook

According to many, Twitter is going public as a younger and much smaller company than Facebook and this would ideally make it easier for the company to generate the kind of robust revenue growth that tends to excite investors. “As Twitter still has a relatively small financial base, it won’t be surprising to see its revenue more than doubling from the previous year for several quarters after its stock starts trading,” mentions social media analyst Sam Hamadeh in his blog.

Many believe Twitter has become a sort a ‘breaking news platform’ and therein lies its biggest strength. The latest news and views reaches Twitter even before TV or news or social media sites, bringing in a lot of traffic globally, alongside a huge consumer base for advertisers.

Research firm eMarketer estimates that Twitter had $288 million in revenue in 2012 and is expected to post around $600 million in revenue this year and close to $1 billion next year. Facebook reported that it generated $5 billion in revenue in 2012. In contrast, in its final year before going public, Facebook had annual revenue of $3.7 billion — more than twice as much as Google did when it went public in 2004. Hamadeh sees both the cases are very different, with Twitter’s move being more strategic.

Facebook saw its stock plunge from its IPO price of $38 to below $18 within a quarter of its IPO amid concerns about its slowing growth and ability to sell ads on mobile devices, which experts believe was a fate it suffered due to aggressive pricing. Hamadeh also mentions that Twitter will not price its IPO as aggressively as Facebook did. That increases the chances of Twitter’s stock rising once it begins trading. He expects Twitter to set its IPO at a price at about $15 billion. That’s up from an estimated value of $10 billion, based on the money Twitter has raised from VCs and other early investors.

Are users affected?

The other question many are asking is how Twitter’s new IPO can have an impact on the users. According to social media strategist Anshuman Das, users on an ongoing basis would not get much affected. However, by going public, Twitter will open up more advertising opportunities in the future for them to monetize it in a more efficient manner.

Twitter is already working with advertisers to help them target specific audiences. Das points out that the most strategic move – and of course a much secretive one - was the buyout of MoPub earlier this week for $350 million. The mobile advertising firm that sells ads across a broad range mobile of properties, will give Twitter a revenue stream beyond its own services. Twitter is also playing its mobile cards right. CEO Dick Costolo says in a statement, the service generates more ad revenues from users on mobile devices than it does from viewers of Twitter.com.

Analysts point out Facebook, however, also makes money from games and other apps built on top of its platform, and it is expected to introduce ads soon on Instagram, the company’s photo app that it bought last year and currently has 150 million users. However, this year, Twitter also bought Vine, a video-sharing app, and quickly integrated it into the company. The service, which lets people craft and share six-second videos, was an immediate hit and has attracted 40 million users.

(Read what users are saying about Twitter IPO at WSJ Blog)

The right timing

Some in the industry believes Twitter could have waited for another year or so to go public, but the time for social media companies to explore is NOW. For social, the market is hot as businesses are realizing social is the way to go and Twitter leveraged this potenital. Not only Twitter’s overall stock prices escalated, Facebook’s stock has increased by more than 60% from the previous quarter and LinkedIn stock has raised over 50% this year.

Kevin Landis, chief investment officer at Firsthand Funds is optimistic about the company. He informs ET that there were reasons Twitter should have an even higher valuation than Facebook. “Twitter has a clear strategy for mobile devices. Facebook was still working out its approach to mobile devices when it went public,” he says.

So, innovation with emerging technology like mobile, being a relatively new player in the market as well as the right timing makes it very logical for Twitter to opt for IPO which in turn can help them accelerate its earnings more quickly than its already established rivals.