Wall Street abuzz over Twitter IPO

by Sohini Bagchi    Nov 07, 2013

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Twitter has announced its eagerly awaited public share offering, revealing it will raise at least $1.82 billion (which can be raised upto $2.1 billion) making a debut at $26 per share on the New York Stock Exchange. The initial public offering (IPO) assigns a market value of around $14.4 billion to the company whose messaging service has become a hugely popular tool for celebrities consumers, businesses, media companies, and advertisers, among others to report distribute and share information. Experts believe with social media and mobile taking the world by storm, Twitter’s IPO will remain one of the most exciting topics in the technology and business world.

Read: Tweets for News: What’s your choice?

Mobile opportunities

Eden Zoller principal analyst, Consumer – Telecoms at Ovum believes that Twitter needs to show it is executing its business plan to reassure investors. “Investors see social media and mobile as sweet spots and it is therefore no surprise that Twitter’s IPO is creating so much excitement and is oversubscribed,” she mentions in a research note. According to Zoller, there are two key challenges Twitter needs to address.

The first one is to keep users engaged while driving advertising revenues. To achieve this objective, Twitter will need to innovate in both services and advertising. She believes that the challenge here is that unlike Facebook, Twitter has a difficult balancing act whereby it must introduce new ad formats into the Twitter stream without compromising the user experience. If it fails to get this right it will hamper user engagement along with advertising spend. At the same time, investing in new service and advertising features will also push up costs, which if not carefully controlled will further impact Twitter’s ability to generate profits.

The second challenge is that Twitter must build advertising revenues as a matter of urgency outside of the US. At present, 77% of Twitter’s user base is outside of the US but advertising is not keeping pace, with only 26% of advertising revenues generated from international markets. Continued strong growth in Twitter’s international user base and it literally cannot afford not to monetize this base.

Research firm eMarketer estimates Twitter will bring in $582.8 million in global ad revenue this year, and nearly $1 billion in 2014. In this regard analysts point out that Mobile will be a key metric to watch once Twitter goes public and from a mobile advertising perspective this is one area where Twitter is further ahead of the curve than Facebook was at its IPO.

Twitter’s filing revealed that over three fourth of Twitter’s 218 million users interact with the service via mobile and that over 65% of the company’s advertising revenues are generated from mobile devices. According to a media report, this is promising and Twitter must ensure it builds momentum behind mobile. However, this may not be as easy as Twitter faces competition from an increasing number of home-grown social network and instant messaging services, particularly in Asia where the likes of WhatsApp, Kakao and Line are very popular.

Read: Twitter hopes to learn from FB’s IPO mistakes

         Twitter still struggling to make money from global users

Becoming ‘Internet utilities’

Others recommend that  just as Google, Amazon and Facebook have become Internet utilities, so too may Twitter. “Twitter gets most of its revenue from advertising in the form of ‘promoted tweets’, but has only been doing this for about three years, and the model is not fine-tuned,” Nate Elliott, senior researcher at Forrester Research wrote on a blog.

“For marketers’ the most common objective on Twitter is to build brand awareness. But consumers are most likely to become a fan or follower of a company in social media after they’ve already bought from that company. Therefore, Twitter must do more to support marketers. Elliott mentioned that Twitter’s marketing business is still relatively young even though it is likely to mature quickly.

Many others however believe that the company’s model is unproven and that social media trends are too unpredictable to justify its high valuation. According to a Wall Street Journal report, Twitter is valued more than 50% higher that its “high growth peers” including Facebook, LinkedIn and Yelp.

As the IPO hits Wall Street, the new report from Wall Street Journal creates another set of excitement. It says the company’s mobile payments platform was in discussions for an IPO which could be launched in 2014.