Twitter has taken the world by storm—140 characters at a time. With over 230 million members worldwide, Twitter is expected to go public on November 7th. Here is what you need to know about Twitter’s upcoming IPO.
1. The most hyped IPO of the year
San Francisco-based Twitter will soon join the recent flood of public technology companies including social media peers Facebook and LinkedIn. Since Facebook’s IPO in May of 2012, no other company has garnered the amount of attention that Twitter has in anticipation of its public offering. This buzz is mainly due to the popularity of the service. Since its inception in 2006, 350 billion tweets have been published. Twitter has become one of the most popular ways to get news, follow public figures, and connect with friends. For a few years now, investors have been clamoring to get in on the action.
2. Trying to avoid the woes of Facebook
With so much hype surrounding the upcoming IPO, Twitter and its underwriters (led by Goldman Sachs) are determined to take a conservative approach in an attempt to avoid the mistakes that led to Facebook’s disappointing IPO last year. Twitter’s stock is said to be priced at a range of $17-20 per share, although the price will not be officially set until the evening of November 6th. At this price target, Twitter is set to raise between $1.2-$1.4 billion, valuing the entire company between $9.3-$11.1 billion. This compares to Facebook’s IPO’s valuation of $16 billion. Yet following Facebook’s IPO last year, Zuckerberg and company watched as their share price plummeted. Although Facebook’s shares have since recovered, Twitter will look to go public at a lower valuation than some might have expected. If everything goes according to plan, Twitter should see their share price skyrocket following their IPO as many on Wall Street have set price targets closer to $30 per share.
3. Will be listed on New York Stock Exchange
Twitter has elected to list their stock on the New York Stock Exchange (NYSE), where it will be traded under the ticker symbol TWTR. Most would have expected Twitter to join the NASDAQ where the vast majority of Silicon Valley tech companies are traded. The decision to be traded on the NYSE is certainly a slight to the tech-heavy NASDAQ as it continues to recover from being sued for botching Facebook’s IPO.
4. Still yet to make a profit
Likely valued at over $10 billion—a number that is expected to rise following their IPO—Twitter is still not making money. A free service, Twitter relies primarily on advertisements for its revenue. The company reported third quarter revenues of $168 million, but this was not enough to leave anything for the bottom line. Investors are relying on the critical mass of users to eventually lead to greater ad revenue, following in the footsteps of Facebook’s business model. With an assumed IPO price of $18.50 (the midpoint of the reported range) Twitter would have the third highest price-to-sales ratio since 1980 of all major US IPOs. Only Palm’s IPO in 2000 and Facebook’s IPO have relied more heavily on investors’ faith in future earnings.
5. More tech millionaires soon to be created
As the technology sector continues to boom, new millionaires have been minted left and right in Silicon Valley and the San Francisco Bay Area. New members will soon be added to this list of “elite geeks” when Twitter goes public. 41-year-old Evan Williams, one of four cofounders, holds the largest equity stake in the company at 12%. Williams will see his net worth soar, launching him into the prestigious 10-digit club. Yet besides the largest equity holders, Twitter employs 743 shareholders outside the executive suite. These shareholders account for roughly $1.5 billion in equity at the expected IPO price, a number that will likely grow days following the initial offering. While Twitter shareholders will not be able to turn that into cash until the 180-day lockup period expires, some lucky young employees will certainly be in for an upgrade of lifestyle.
As the most highly anticipated IPO since Facebook’s approaches, the long-term success of Twitter’s stock is being doubted more and more. This hype will likely lead to an unsustainable surge in share price following the IPO, allowing early investors to practically mint money if they sell off their shares quickly after. Yet there are many concerns about Twitter’s future earning power and profitability that put the stock’s long-term value into question. While Facebook’s shares experienced a rapid decline in price followed eventually by a slow and sustained rise, it would not be surprising to see the inverse of that trend with shares of Twitter.
Photo Credit: Pete Souza