Twitter learns from Facebook's IPO flop

 

 

SAN FRANCISCO — Twitter’s initial public offering is likely to be the most scrutinized coming-out party since Facebook went public in May 2012 and promptly flopped.

Facebook’s follies made an impression on its social networking rival. Here are four signs of the Facebook influence on Twitter:

Lesson 1: Take the road less traveled.

IPO submissions to the Securities and Ex­change Commission typically include exhaustive financial information and other sensitive details. By taking advantage of the regulatory changes introduced since Facebook went public, Twitter is giving investors, the media and would-be competitors less time to pore over its IPO documents.

A law passed last year shortly before Facebook completed its IPO allows a company with revenue of less than $1 billion to file its IPO papers with the SEC confidentially. This allows the documents to remain secret until 21 days before the company starts marketing the deal to investors – a ritual known as a “road show.”

Twitter hopes the option will minimize nitpicking over its business model. Facebook had to endure more than three months of second-guessing, and it couldn’t respond to criticism or misleading interpretations of its filings because of an SEC-enforced “quiet period” before an IPO is priced.

Lesson 2: Work the numbers.

Twitter is going public as a younger and smaller company than Facebook, making it easier for the company to generate the kind of robust growth in revenue that tends to excite investors.

Facebook was 8 years old by the time it went public and had already built such a large business that it was more difficult to speed its pace of growth from one quarter to the next.

Twitter is only 7 years old and didn’t even start to generate significant revenue until 2010. Research firm eMarketer estimates that Twitter had $288 million in revenue last year (the actual figure will be revealed once the veil lifts off the company’s IPO documents).

Lesson 3: Leave some money on the table.
Twitter won’t price its IPO as aggressively as Facebook did, PrivCo analyst Sam Hama­deh says. That increases the chances of Twit­ter’s stock rising once it begins trading. He expects Twitter to set its IPO at a price that values the company at about $15 billion. That’s up from an estimated value of $10 billion, based on the money Twitter has raised from venture capitalists and other early investors.

Lesson 4: Timing is everything.

Many analysts thought Twitter might wait until next year to go public, but the stock market’s appetite for social media companies has never been hotter. With the company’s revenue growth picking up again, Facebook’s stock has surged by more than 60 percent in less than two months, and LinkedIn Corp.’s stock has more than doubled so far this year.

Things are going so well that even Facebook CEO Mark Zuckerberg has gotten over his one-time aversion to going public. In an about-face, Zuckerberg told a technology conference in San Francisco earlier this week that the IPO process turned Facebook into a better-run company.

“I have been very outspoken about staying private as long as possible, but I don’t think it’s that necessary to do that.” Zuckerberg said Wednesday.

Twitter tweeted the news about its IPO filing less than 24 hours later.

 

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