Thoughts on the Twitter IPO @ Paper this Deal

Last Thursday September 12, 2013, Twitter, from its official account, tweeted the following:

TwitterTwitter         @twitter

We’ve confidentially submitted an S-1 to the SEC for a planned IPO. This Tweet does not constitute an offer of any securities for sale.

14,577 RETWEETS 3,357 FAVORITES

First off, Twitter has timed this pretty well.  Facebook shares are up after their roller coaster ride post IPO, and LinkedIn shares are doing rather well.  This year of 2013 also has the most IPO activity since 2007, and most of them have risen in value since they started trading.

Twitter filed an S-1, under the new law that allows small companies to keep their IPO documents private.  The JOBS Act allows “emerging growth companies” which are those with revenues under $1 billion, to keep certain information confidential from the public at least for a while.  This is good for the company as it can work out issues with the SEC without the media getting the public riled up, but investors would really like to see Twitter’s financials, among other things.

Despite its status as an emerging growth company, Twitter is apparently valued at more than $9 billion.  This guesstimate of the valuation comes from many places, but mainly from when some Twitter employees sold their shares in private sales to a hedge fund earlier in the year.   Even at this valuation, it still makes Twitter small compared to Facebook which IPO’d with a $100 billion valuation.

I have seem private placements floating around late last year and early this year offering shares in funds which would purchase shares of Twitter.  They didn’t have any financials for Twitter either, nor any legally binding agreements to actually buy the shares.  Needless to say, I and the people I know who saw the opportunity passed.  Lately companies have been holding back about 20% of the offered shares for sales to individuals but we’ll have to see how it plays out.

The big issue with these social media companies is how they will create cash flow and hence profits for the shareholders. Facebook had, and still has, this problem.  Having a huge user base is important, mainly because it provides potential eyes for advertisements.    Twitter has been running its “promoted tweets” which randomly show up in users’ feeds, and according to the Wall Street Journal, through that feature expects to pocket $583 million in income in 2013.   Twitter has the massive user base throughout the world to be able to offer other advertisers way to communicate with customers, in a very targeted and specialized way, but its too bad it hasn’t come up with a more innovative way to monetize.

On the down side, despite its prevalence a lot of people still don’t “get” Twitter and view it as something that teenagers use (I do not agree with this).  Others see it as a passing fad, as there are some competitors out there (none that I think are positioned to take a chunk of Twitter’s user base at this point, however).

Really, the fear is that once the IPO occurs the pressure will be on to really maximize revenues for the shareholders and keep that stock price rising.  The limited amount of “promoted tweets” that you see at this point is acceptable.  But if Twitter starts to push too many ads in users’ feeds, then I know I will be less inclined to use Twitter in the future, as I think Facebook has started to go this route and its turning people off.  Its interesting that some websites, which seem to be able to change how the world communicates or shares information have a hard time making money.   The advertiser model may need to be tweaked.

Previous

Intrastate Securities Offering Exemption @ Paper this Deal

Next

Tax Treatment of S-Corp Payments to Shareholders @ Paper this Deal

1 Comment

  1. You’ve fantastic info in this case.

Leave a Reply

Powered by WordPress & Theme by Anders Norén