In one of this year’s most hotly-anticipated initial public offerings, Twitter has announced that it will join the stock market, valued at more than $10 billion.
Parallels will of course be drawn between this IPO and Facebook’s venture into the public domain last year, which was not nearly as successful as had been initially expected. Shares plummeted, and it took almost a full year for them to recover.
Economists are confident however, that Twitter’s initial offering will not perform as poorly as the other social media giant.
Hype Damaged Facebook IPO
One of the primary criticisms of Facebook’s IPO process was that founder Mark Zuckerberg delayed it for far too long. Eight years of build-up meant that there was an enormous amount of hype and investment and that ultimately meant that shares were bound to plummet. Twitter’s IPO will be happening in only its seventh year.
While this difference of a single year might not seem critical, things become clearer when valuations are taken into account. In 2011, Facebook was valued at $50 billion, but soared to $100 billion at the 2012 IPO, following an incredible degree of hype and speculation. Twitter on the other hand, is valued at a more modest $10-20 billion.
Twitter will have benefited from the fact that it was able to file its IPO confidentially, supressing hype, whereas Facebook could not. This is due to the JOBS Act, which allows confidential filing for companies with revenue of under $1 billion.
Growth is an extremely important in success on the stock markets, which is the other main reason for Twitter to have more confidence. When Facebook listed, it was at an enormous high, but Twitter still has room to manoeuvre and grow, something which attracts investors.
There are other factors too, which may well have their own impact. The Facebook IPO was directed by Morgan Stanley, which has traditionally dominated Silicon Valley listings, including with Groupon and Zynga, both of which disappointed. Twitter however, will be using Goldman Sachs.
Similarly, Nasdaq has traditionally been the favoured exchange for Silicon Valley companies to list on, but after it made serious errors in the Facebook IPO, it isn’t yet clear if it will be chosen by Twitter. Last week it was reported that a lukewarm reception to Apple’s new handsets had a major impact on the Nasdaq, and it’s heavy weighting may make the exchange less attractive.
There’s no official word yet on exactly when the IPO will begin, or on pricing, but there is already a huge degree of anticipation. The announcement was of course made via Twitter itself, and attracted more than 8000 retweets in the first hour. From now until the floatation, there is likely to be little further information, as the company is not permitted to speak to the media in the period following the submission of IPO paperwork.