News

POV: Twitter's upcoming IPO

MINDSHARE POINT OF VIEW

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.” — Twitter (@twitter) September 12, 2013

Background

With a brief tweet, last week Twitter made official the worst kept secret in the business: it’s going public. To date there is not much information as the company filed under the JOBS Act, which made it possible for the company to file its S-1 statements in secret. In fact, there is only speculation, mainly around the IPO price (potentially $10 to $15 billion) and the timings (probably the end of 2013/early 2014).

Details

The JOBS Act went into law on April 2012 and it allows the so-called “emerging growth” companies – startups with less than $1 billion in annual revenue – to file secret S-1 statements with the SEC, which will have to be made public 21 days prior to the investors and analysts IPO road show. The act allows startups to test the waters and avoid weeks or months of bad press; e.g., Groupon’s painful questions over its faulty accounting methods.

Of course the secrecy reveals one major piece of information: Twitter has small enough revenue to fit under the act. In fact a report from eMarketer earlier in the year predicted that the company’s ad revenues would grow to about $583 million in 2013. Next year Twitter is predicted to reach over a billion in revenues, demonstrating its great momentum and future potential in ad revenue growth.

Twitter’s user base growth has also been remarkable if not lower than initially forecast. Last December Twitter reached 200M monthly users, with a forecasted growth targeting 400M. However, as of today, the platform has roughly 240M with an additional 20M expected by the end of the year. These numbers, while substantial, reinforce industry conjecture that Twitter may not reach the mass penetration levels seen by its much larger and widespread archrival Facebook. Even Twitter’s much mooted position as the number one social TV destination has been challenged by Facebook, who point to the substantial number of closed TV related conversations that happen on its platform but don’t get measured.  

Nevertheless Twitter continues to build an extraordinarily attractive platform. Recent acquisitions, (Bluefin, Trendrr, and MoPub) and new advertising tools and formats (TV re-targeting) have arguably offered many marketers a much simpler, cost-effective, and real-time means to not only advertise but also to capitalize on the new TV and online love affair.

Twitter has also learned some lessons from Facebook, and in particular the latter’s controversial 2012 IPO. Twitter has taken a very different approach to the timing (sooner), its lead underwriter (Goldman Sachs), the filing under the JOBS Act, and finally its rumored choice of NYSE rather than NASDAQ.  

Implications

For advertisers, an IPO is good news as the influx of cash will allow Twitter to scale and expand faster (a long-standing complaint about perpetually thin on the ground Facebook), build more functionality and advertising opportunities into the platform, better promote itself to a wider audience, and finally make additional acquisitions.  A successful Twitter IPO could also embolden other companies potentially weary of going public due to Facebook’s fiasco, although Zuckerberg’s social network and wealth has seen an amazing rebound in recent weeks.   

Summary

Here we go again, but perhaps this time a bit wiser and without the circus that came with the Facebook IPO. Twitter has had an amazing year, topped off with two very smart acquisitions. Going public will enable it to build up the war chest it will need in the coming years to take on Facebook and other giant regional social networks as it expands around the world.