Twitter will conquer IPO, diversify
Back in 2006, Twitter started as a side project by founder Jack Dorsey as a hedge against his dormant startup Odeo. Fast forward seven years, and Twitter has become one of the biggest names in social media. Along with Facebook, Twitter brought the very notion of social networking to the masses. Some sources, like telegraph.co.uk, estimate that Twitter has 200 million active users. In a couple of months, Twitter will face its biggest challenge yet — the infamous initial public offering (IPO).
At worst, IPOs can destroy companies; at best, they can bring about significant change in company culture. The prospect of quarterly earnings, shareholder pressure, and activist investors can paralyze an organization and shift its focus away from innovating on its core platform. Just look at Facebook to see how painful an IPO can be. Facebook has had an incredibly rocky first year as a public company. Its stock dropped to below half its IPO price in August according to The Huffington Post, and Facebook is still trading at a price not much above its IPO price. Won’t Twitter be affected in the same way that Facebook has been?
Twitter is well-positioned to avoid these pitfalls and emerge as a healthier, more diverse company following a public offering.
One of the primary reasons Facebook’s stock tumbled is that it didn’t have a credible revenue model for mobile devices a year ago. Knowing how to monetize mobile capabilities is of paramount importance for an Internet company, since the majority of future growth in the technology industry will come from smartphones and tablets running operating systems like iOS and Android. Twitter, on the other hand, has been monetizing mobile capabilities for as long as it has been financially viable. This year, mobile advertisements are expected to account for 55 percent of Twitter’s revenue, according to Mediabistro.com. In fact, Twitter was originally conceived as a mobile platform that allowed users to use text messages to tell groups what they were doing. In other words, Twitter’s future is far more secure than Facebook’s was one year ago.
Another large difference between Facebook and Twitter’s IPOs has more to do with the IPOs themselves. Facebook’s IPO was highly publicized — one of the most hyped IPOs in history. Facebook also set a relatively high initial IPO price of $38. The impending Twitter IPO is a decidedly lower key affair. The announcement was made, in characteristic fashion, through a tweet: “We’ve confidentially submitted an S-1 to the S.E.C. for a planned IPO.” Through this ingenious move, Twitter announced that it planned to go public while withholding every other detail about the IPO. Goldman Sachs will underwrite the offering, according to The Wall Street Journal, and the stock will be priced and executed to have shareholder appreciation, thus sidestepping Facebook’s most significant IPO flub. By not setting any public expectations from its IPO, Twitter avoids public disappointment.
Most importantly, an IPO is a foundation for the company Twitter wants to be tomorrow. If it is to continue to grow at the rate it has, Twitter needs to ramp up investment in its future products. The best way to generate that kind of cash is through an IPO.
Twitter today is a social network for personal use. Twitter tomorrow is a global, real-time news and entertainment network centered around its core platform, but with a variety of other successful products including Twitter Music and Vine, as well as products under development in markets, including local discovery and TV advertising.
Will the IPO be a disaster, or will it be a much needed catalyst to enter new markets? Although nobody knows, I’d wager my money on the latter.