Twitter Being Cautious with IPO

Jacob Harper |

The last major private social media company is about to go public. At 2 PM on Sept 12 Twitter announced – fittingly, via a tweet – that they had filed a confidential S-1 with the Securities and Exchange Commission for a planned IPO. The Twitter IPO is the most anticipated since Facebook Inc (FB) went public in May 2012.  

Of course, Facebook’s IPO was an unmitigated disaster, with the stock losing half its value in the following week. While Facebook has made that back, regaining their $38 a share IPO price roughly fifteen months later, Twitter is being incredibly cautious.

Twitter has been valued between $10 billion and $20 billion, far less than the $104 billion valuation Facebook had at the time of their IPO. Facebook CEO Mark Zuckerberg has gone on record saying he thought his own company had gotten too large and waited too long to go public, saying “I don’t think it’s necessary to (wait).”

Twitter is retaining Goldman Sachs Group (GS) to handle the IPO, instead of Morgan Stanley (MS) who led the IPOs for tech companies Facebook, Groupon Inc. (GRPN$) and Zynga Inc (ZNGA) . Of course, those IPOs all significantly overstated the value of those companies. Facebook was greatly hindered by their own initial overvaluation, and both Groupon and Zynga are still worth less than what they were at their public debut. By utilizing Goldman, who is the most popular IPO underwriter for non-tech companies, Twitter is playing it conservatively, and greatly hedging against coming out of the gate too strong like the Morgan Stanley clients did.

It is worth noting as well that Twitter filed their IPO confidentially, which is allowed for a company with revenues of less than $1 billion a year. This helps stave off hype that can artificially inflate expectations, like Facebook suffered from. Additionally, filing confidentially means that Twitter can still save face if they end up backing out – which in line with their careful march towards going public is still a possibility.  

Regardless of how close to the vest Twitter is playing their IPO, investors are already ecstatic. Former PayPal executive and Yammer founder David Sacks was bullish, tweeting “over/under for Twitter at end of first day of trading: $25B." Investors looking to round out a social media portfolio were also excited. “This is the one main company that was missing,” Bruno del Ama, CEO at Global X Funds, said “Having a company like Twitter as a potential investment in our fund is very exciting for us.”

If Twitter is to go public, now would be an opportune time. They are under a billion in sales, per their confidential IPO status, but they expect to go over a billion in revenue within two years. Also, social media stocks are on a hot streak, with both Facebook and LinkedIn Corp (LNKD) hitting all time highs on Sept 11.

Twitter’s IPO has not been set, but analysts speculate if it does indeed happen, it will take place sometime in late 2013.

 

(image courtesy of DeviantArt)

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Companies

Symbol Name Price Change % Volume
FB Facebook Inc. 117.43 2.03 1.76 20,206,155
MS Morgan Stanley 42.09 0.26 0.62 12,264,184
GS The Goldman Sachs Group Inc. 228.55 5.19 2.32 4,599,808
LNKD LinkedIn Corporation Class A 195.25 0.05 0.03 1,184,931
ZNGA Zynga Inc. 2.95 0.09 3.15 8,295,535
GRPN Groupon Inc. 3.80 0.01 0.26 21,922,952
EYNOP Entergy New Orlns 4.36 Pr 102.00 0.00 0.00 0

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