Twitter Inc.'s market debut will be the most anticipated initial public offering since Facebook Inc. listed last year, and the microblogging service is making sure to avoid some of its rival's pitfalls.
Twitter disclosed it had filed to go public in one of its 140-character postings yesterday, giving no other financial figures or details on when it will actually list.
The San Francisco-based company filed confidentially with the U.S. Securities and Exchange Commission through a process that will keep sales and profit data under wraps until shortly before a road show to market to investors. Twitter may be seeking to avoid the hype that led to Facebook pricing its offering at 107 times trailing 12-month earnings, more expensive than 99 percent of all companies in the Standard & Poor's 500 Index at the time. Facebook lost half its value following the $16 billion IPO.
“Twitter will do everything they can to avoid anything that looks like the Facebook IPO, both on the expectations front and the execution front,” David Pakman, a New York-based partner at Venrock Inc., an early-stage venture-capital firm, said by phone. “By the confidential filing, it will hopefully be able to keep expectations down a bit, and hopefully use a different pricing strategy than Facebook.”
Goldman Sachs Group Inc. will be the lead underwriter for the IPO, according to people with knowledge of the matter, who asked not to be identified because the information isn't public. The investment bank's top rival, Morgan Stanley, led Facebook's public debut.
'Extremely Turbulent'
Twitter's filing used the Jumpstart Our Business Startups, or JOBS, Act, which lets companies that qualify as emerging growth companies submit a filing for confidential review. Jim Prosser, a spokesman for Twitter, declined to comment on the company's IPO strategy.
The microblogging service was valued last month at about $10.5 billion by GSV Capital Corp., one of its investors, up 5 percent from a May estimate. Facebook, whose shares reached a record this week after recovering from a decline of as much as 53 percent last year, currently is valued at about $109 billion.
Facebook Chief Executive Officer Mark Zuckerberg described the first year as a public company as “extremely turbulent” in an interview Sept. 11 at an event run by technology blog TechCrunch. Still, he's learned from the process and said he shouldn't have worried as much about the challenges of going public, he said when asked about a potential Twitter IPO.
“I actually don't think it's that bad,” Zuckerberg, 29, said. “I was really worried that people would leave the company and that people would get really demoralized when the stock was down. I actually think that it's made our company a lot stronger.”
Close Scrutiny
Facebook, after increasing the price and number of shares, debuted in May 2012 in the biggest IPO for a technology company. The stock slipped below its IPO price on the second day of trading and began sliding. Investors were concerned that the operator of the world's biggest social-networking service would struggle to profit from its growing base of mobile users. Facebook had only rolled out an advertising service for wireless devices during the IPO process.
The stock began climbing from its lows in September 2012, and it wasn't until July of this year that Facebook put many of those concerns to rest when it announced revenue from mobile made up more than 40 percent of advertising dollars in the second quarter. The stock topped the IPO price of $38 in August and earlier this month surpassed its all-time high.
Shares in Facebook fell less than 1 percent to $44.75 at yesterday's close in New York, leaving the stock up 68 percent this year.
Growth Targets
Facebook filed for its IPO in February 2012, giving investors an early look at its financials. Each subsequent filing would get scrutinized for any changes or surprises, and a later filing raised questions over mobile revenue.
Twitter will be able to keep that information under wraps until shortly before the market debut.
“Twitter did it because they can,” said Michael Pachter, an analyst Wedbush Securities Inc. in Los Angeles. “It just avoids the public scrutiny.”
Twitter, which started in 2006 and didn't introduce advertising service until 2010, is also at an earlier stage of growth than Facebook was at its public debut. While Facebook had almost $4 billion in revenue the year prior to the IPO, Twitter is targeting sales of $1 billion in 2014. That means the company has a better shot at showing robust growth after it goes public.
Investment Option
“Twitter is probably coming to market with a different phase of their growth cycle than Facebook did,” Pakman said. “I think their strategy of when to go public is more about where the company is in the maturity of its core business model, and what kind of growth it sees ahead of it.”
Twitter will grow advertising revenue to $950 million in 2014, an increase of 63 percent from $582.8 million this year, EMarketer Inc. estimates. That's up from just $139.5 million in 2011, according to the research firm.
The microblogging service also has a strong mobile story. Advertising tied to wireless devices should make up more than half of revenue this year, according to EMarketer.
“Twitter is establishing itself as a leader with a growing strength in pure-play mobile advertising, ” Brian Wieser, an analyst at Pivotal Research Group, wrote in a research note yesterday.
Twitter is already attracting investor interest. The company will be a welcome option for those seeking to diversify from the other two big social-media sites, Facebook and LinkedIn Corp.
“This is the one main company that was missing,” said Bruno del Ama, CEO at Global X Funds. “Having a company like Twitter as a potential investment in our fund is very exciting for us.”
(Bloomberg News)
