Twitter IPO is One Facebook Would Have "Liked" to Have

This isn’t the first time the tech community has had an exciting social media initial public offering (IPO) to post incessantly about in 140 or fewer characters. But past IPOs in the industry have had varying levels of success. Companies that once seemed on a permanent trending trajectory stumbled under the harsh scrutiny of public investors (see Zynga, Groupon, and Facebook, circa summer 2012 for reference). As Twitter approaches its IPO and begins its publicly-traded existence, can current CEO Dick Costolo steer the company clear of similar embarrassment? Costolo himself has a lot to win — or lose — in the process. A successful IPO effectively validates Twitter’s decision to bring him in as CEO, replacing co-founder Evan Williams in 2010. Much has been made of Costolo’s previous improv comedy experience, but Twitter’s board was likely more impressed by his 20 plus years of experience in consulting, technology, and taking startups through successful acquisition (FeedBurner, et al). He’s already shown he’s more capable at the helm than either of Twitter’s co-founders, maturing Twitter from its startup, hacking adolescence into a well-managed company. There’s much to say for startup culture and flexibility, but when your company is routinely valued around $14 billion, that label — and management style — have to undergo certain changes. Shareholders probably wouldn’t have met the company’s previous “make better mistakes tomorrow” motto with much enthusiasm. As Twitter becomes publicly traded and continues to grow, it’s imperative for Costolo to maintain a tricky balance: retaining the company’s sex appeal and tech buzz, while also setting a course for consistent profitability. If you ask Twitter’s employees, they overwhelmingly — to the tune of 96% — approve of Costolo’s balancing act thus far. He has revamped management practices while sustaining a trajectory that increases the company’s valuation by billions every year. If Costolo’s decision-making in moving towards an IPO is any indication, Twitter has sustained success in its future. The company continues to grow steadily to the point now where it’s too big for acquisition to even have been an option. Phil Libin, CEO of Evernote, confirms that Twitter “wouldn’t have any problems getting private investment,” if that were the growth strategy it had chosen. A quick look at Twitter’s valuation chart over the past several years makes it clear why private investors would clamor the chance to give Twitter more capital. If recent trends in the company’s revenue continue, stock market investors will step into the action with glee.

Twitter IPO: What Investors Should Know About the Initial Public Offering

If you saw Twitter’s IPO announcement last Thursday and found yourself feeling left out or scratching your head, you’re surely not alone. In the brevity of a tweet, Twitter said that it had confidentially filed an S-1 with the SEC for a planned IPO and followed up with a quick disclaimer. With references being made to Facebook’s inept IPO and millions of dollars on the line, perhaps you’re wondering if you should get in on all the action. Before you get too excited, there are a few things you need to know. What is an IPO? An initial public offering (IPO) occurs when shares of a company stock are being sold to the public for the first time. Through this process a private company becomes a public company, hence the term “going public”. Simply speaking, the owners of the company are giving up part of their ownership to the general public, in order to help the company raise more capital for expansion and to open the doors for other financial opportunities. The owners and early investors benefit because they stand to rake in millions, and since their financial statements are being made public and they company is now under SEC regulation and scrutiny, they get better rates when issued debt because inherently there should be less risk and uncertainty for the lending parties. New stockholders win because they get to lay stake to a company they believe in, can vote for board members or subsequently sell shares to make a profit. The Process of an IPO A company hires underwriters to help them do a whole host of things, including valuing their shares, allocations and other details of their planned offerings. The SEC also requires that a company disclose information—a prospectus—to potential purchasers in advance of the actual date of the IPO with part of their filing. This part of the IPO is rather risky because it lets competitors see what the company is doing and puts the company under extreme scrutiny without the ability to respond to criticisms; the company is essentially leaking its own information while under a gag-order. Twitter is doing things a little differently—they’re filing confidentially. Under one of the provisions of the Jumpstart Our Business Startups (JOBS) Act, companies with less than $1 billion in annual revenue do not have to disclose their financial documents to investors until 21 days before their road show—when the company owners will go around the world and talk to current and potential investors. In contrast, Hilton Worldwide Holdings filed an IPO on the same day as Twitter but their filing is public, as their annual revenue is around $7.4 billion annually. NerdWallet, Should I Invest? If this would be you first foray into investing the answer is no; even if you have a typical portfolio in investing, the answer is still mostly likely no. Buying stocks before an IPO is tricky and extremely risky, so much so that the SEC has regulations against a normal person, like you or me, (and not an accredited investor—someone with a net worth of over $1 million or an income over $200,000 in each of the two most recent years), from buying stock until after it is already trading on the stock exchange. I’m Not Average Joe and I Want to Get In on the Twitter Action! If you do have bit more income to spare, are an individual investor and you value the Twitter product here are a few things you should know: ◾First and Foremost, Answer This Question—Do you think Twitter will become a financial powerhouse? Right now Twitter isn’t exactly a profit machine, but do you think that they have the means to develop more revenue? If you’ve sketched out a positive and reasonable scenario, and don’t mind the risk, then by all means. ◾You’ll Have to Play the Waiting Game—Because details are scarce, a good investor knows that they will just have to wait. ◾Call Your Broker—Your brokerage will be getting information in the coming months and often have dealings with the underwriters in the IPO process that will entitle them to get a certain number of allocations. Let your broker know you’re interested. ◾Read the Prospectus—Attend a roadshow. Watch a roadshow. Do whatever you can in the 21 days before the IPO to make sure you are informed. So while it may be exciting and tempting to get caught up in the frenzy, for most people investing in an IPO is not for you. Just congratulate Twitter—preferably with a tweet—and be on your way.

Twitter IPO Versus Hilton IPO: How They Stack Up

The online buzz about Twitter’s IPO is huge. But another IPO announced the same day might be a safer bet — the largest hotel chain, Hilton Worldwide. Will Twitter’s IPO be a flameout or a hit? It’s way too early to tell. Social brands can boom and bust so easily But for those who’re skittish about investing in a stock that could turn into another Groupon, Hilton is everything Twitter is not: old, established, diversified, and rich in hard assets. We have yet to see the filing for Twitter’s IPO, so many details about Twitter’s business operations remain undisclosed at this moment. But enough is known that it’s worth taking a look at how these two businesses’ public offerings compare: Age: Hilton: Nearly 100. Twitter: 7. Business: Twitter — virtual. Hilton — brick and mortar. Valuation: Hilton: Based on the IPO filing for up to $1.25 billion in shares, and percent of the company that will be offered to the public, Hilton has an estimated $30 billion valuation. Twitter: $15 billion valuation or more, depending on who you ask. Customers: Hilton: 125 million a year, 38 million of them members of Hilton’s loyalty program HHonors. Twitter: In a blog post, the company recently said it has 200 million active users. Revenue: Hilton: $9.4 billion. Twitter: $583 million in 2013 ad revenue, eMarketer estimates. Brands: Twitter: one. Hilton: Ten, including Embassy Suites and DoubleTree. That diversity helps shield Hilton from problems that might crop up in any one of its hotel chains. Form of IPO filing: Hilton: Public. Twitter: Secret. Twitter is taking advantage of new IPO filing rules to make its first filing confidential. This allows the company to start talking to investors without sharing its financial details with the public. Which makes you wonder how creative they’ve gotten with accounting for this filing. Hilton’s secret weapon for growth Where Hilton really shines compared to Twitter is in its growth strategy and the sophistication of its growth plan. While Twitter continues to grapple with how to monetize its audience — without pissing off users and driving them away with too many ads — Hilton has more than 665,000 hotel rooms open now, 170,000 of which opened in the past five years. Another 176,000 hotel rooms are in development, the most of any hotel chain. Hilton also has a fulcrum for growth Twitter can’t access: franchising. Many hotel visitors probably don’t know this, but most large hotel chains are franchises, with each unit individually owned. And Hilton’s franchisees know what they’re doing. Hilton reports its franchised units earn more than the company-owned hotels. Franchising means Hilton needs less growth capital, as franchisees put up much of the money to open new hotels. Hilton is plowing more resources into franchising and has grown this segment of its business nearly 40 percent over five years. The IPO timing is also good for Hilton because hotel stocks including rivals Marriott and Hyatt have been doing well. For Twitter, well, the social-media IPO track record of late has been more mixed. We’ll see if investors are still feeling traumatized after Facebook’s IPO mess.

Twitter drawing on lessons learned from Facebook IPO

SAN FRANCISCO — Call it the anti-Facebook IPO. It may be the most hotly anticipated initial public stock offering since Facebook Inc. But Twitter Inc. is doing all it can to distance itself from the Facebook fiasco, which has become a case study on how not to take your company public. "Certainly the crew at Twitter has had ample opportunity to study recent history and draw whatever lessons they can from it," said Kevin Landis, whose Firsthand Technology Value Fund has a substantial stake in the San Francisco social media company. For one thing, Twitter is likely to price its shares more modestly so it has room to grow once it goes public, analysts say, and probably will offer a smaller percentage of the company than Facebook did to goose demand. Twitter's caution was apparent Thursday when it announced via a surprise tweet that it had confidentially submitted paperwork to begin selling stock to the public. It was the antithesis of Facebook's splashy announcement in February 2012, which gave investors an early and revealing glimpse into every aspect of its financial performance. Each subsequent public filing received intense scrutiny, especially the one that raised worrisome questions about Facebook's lack of mobile advertising revenue. Facebook sold $16 billion in stock to investors in May 2012, only to see its share price skid in the following months amid doubts about its ability to make money from its 1 billion users. Twitter took advantage of a provision in the law that allows a company with less than $1 billion in annual revenue to keep its financial data under wraps from competitors and the media until it begins actively marketing its stock to investors. By filing under the Jumpstart Our Business Startups, or JOBS, Act, Twitter can avoid the pitfalls that Facebook encountered while still stirring excitement over the IPO. "Twitter gets to have its cake and eat it too," said Landis, whose fund bought more than 1 million Twitter shares on the private market at an average cost of $17 a share. "Twitter gets to start the drumbeat for the stock without revealing too much." The process gives Twitter a greater measure of control than Facebook had, Altimeter Group analyst Charlene Li said. Twitter can consult with the staff at the Securities and Exchange Commission about providing numbers and estimates, and may be able to sidestep some of the pitfalls faced by Facebook. "Twitter's business model is really confusing. It's not obvious how they make money," Li said. "They can spend the next few months going out and educating the marketplace." The shroud of secrecy is an ironic touch for a company that prides itself on transparency — and it leaves prospective investors very little to go on. "Twitter is a strong, fast-growing company that is increasingly important in the media industry while still being relatively small," Pivotal Research Group analyst Brian Wieser said. "But we really know very little about it at this point in time. We don't know how big its business in Japan is. We don't know about its capital expenditures or its data center expenditures. We know far less than we need to know to make any real assessment." Twitter is seizing on an opportune moment to sell stock to the public — and it has Facebook to thank. Investors have warmed up to social media stocks, especially as mobile advertising revenue growth accelerates. Facebook's shares hit a record high of $45 this week, above the $38 IPO price. LinkedIn, the professional networking service, is trading at sky-high levels even after selling an additional $1 billion in stock to investors in a secondary offering. That's why Twitter is also working on a faster timetable. Most analysts expect Twitter to hold its IPO by December to take advantage of Facebook's dramatic comeback with investors and LinkedIn's continued success. Twitter was built to send simple text messages on mobile devices, and has been growing rapidly. It said in December 2012 that it had 200 million active users, and there's widespread speculation that it's closing in on 300 million. "Facebook and LinkedIn have done a tremendous amount of the work for Twitter in terms of establishing these types of businesses as important and worth investing in," said Michael Scissons, chairman of Grid Ventures, an investment and business consulting firm. Still, Twitter's business is at a much earlier stage — it only began showing ads to its users in 2010 — and analysts say it has a lot to prove. Research firm EMarketer expects Twitter to increase advertising revenue 63% to $950 million in 2014 from $583 million this year. That's up from $140 million in 2011. It's wildly popular with celebrities, musicians and politicians and has deep tentacles into the worlds of media, sports, politics and entertainment, but it's confusing to new users. And its business is not as easy to understand as Facebook, Wedbush Securities analyst Michael Pachter said. "I'd say 90% or more of institutional investors are on Facebook, 20% or fewer are on Twitter," Pachter said. "Twitter has a huge uphill battle to explain to the investing community what it does." Twitter makes most of its revenue from an ad called a "sponsored tweet," which is given a prominent spot in users' timelines, the streams of updates from the accounts they follow. Advertisers bid for their messages to appear in the timelines of certain demographics or with certain keywords. The key challenge facing Twitter: Ads on Twitter only work on Twitter, Li said. "That makes ad buying — and scaling to media buyers — more difficult," she said. But Twitter has an edge Facebook did not at the time of its IPO: Its mobile advertising business. Ads on smartphones and tablets are expected to make up more than half its revenue this year, according to EMarketer. It also has the seasoned guidance of patient managers, Scissons said. Dick Costolo, who took over as chief executive in October 2010, has taken his time putting in place the right executives and rolling out advertising products that generate results for marketers and don't alienate users, Scissons said. With the IPO, Twitter is looking to build a war chest to fuel its global expansion and take on Facebook, with which it competes for online advertising dollars and eyeballs. It's also a way for employees and investors to cash in their shares. Twitter has received more than $1 billion in venture funding. In recent months, Twitter put an airtight lid on selling shares on the private market. jessica.guynn@latimes.com chris.obrien@latimes.com

Exclusive: Saudi prince to hold Twitter stake, sees IPO by early 2014

(Reuters) - Saudi billionaire Prince Alwaleed bin Talal says he will not sell any of his shares in microblogging site Twitter Inc when it goes public, and expects the firm's IPO to hit the market later this year or in early 2014. The prince, a nephew of Saudi Arabia's King Abdullah and owner of international investment firm Kingdom Holding, invested $300 million in the social media giant in late 2011. "Clearly the speed they're moving with shows that they would like to IPO sooner than later. I believe it will happen either this year or early next year," Alwaleed told Reuters in a telephone interview on Sunday. "Twitter is a very strategic investment for us. We believe that it is just beginning to touch the surface. We have invested $300 million in the company. We will be selling zero, nothing, at the IPO." He did not say whether he might buy new shares in the offer. Alwaleed is a closely watched figure in international markets because of successful investments through Kingdom Holding in companies such as Citigroup and Rupert Murdoch's News Corp. Twitter has filed for an initial public offer of shares with U.S. regulators, the company said on Thursday, taking a first step toward what would be Silicon Valley's most anticipated debut since Facebook Inc's listing last year. "With the 300 million customers they have and half a billion tweets a day, the growth potential is tremendous," Alwaleed said. He said Chief Executive Dick Costolo was "very knowledgeable, very much trustworthy". The market expects the company's value once listed to be more than $10 billion; Alwaleed sees potential for a much higher valuation. "We hear that the company is valued at $14 billion-$15 billion but there have been trades above this valuation. We believe it might be worth more than that." LEARNING LESSONS Facebook's rocky 2012 debut and subsequent share-price plunge chilled the consumer-dotcom IPO market for a year. The stock clawed its way back to its $38 IPO price in July, however, and is now at a record high after touching $45 this week. Alwaleed wouldn't comment on whether Twitter would choose to list on the New York Stock Exchange in order to avoid Facebook's disappointing experience on Nasdaq. But the prince said: "In my discussion with Mr Costolo and the management of Twitter, I cautioned them to be very careful and not to repeat the mistakes of Facebook. "The lessons are not to brag too much, don't be greedy - I mean price it right and be realistic." He added, "There could be a good surprise for the market, where Twitter revenues coming from mobile compared to fixed devices are way ahead of what Facebook came with at the time of the IPO." By transmitting news and opinion, social media such as Twitter played a big role in mass protests that have led to the ousting of Arab rulers in Tunisia, Egypt, Libya and Yemen since 2011. Saudi Arabia, where Twitter use has been growing rapidly, has spent billions of dollars on welfare schemes to contain discontent and avoid unrest. Alwaleed said on Sunday, "There is no doubt that Twitter accelerated the process of disseminating news. It has to remain an open forum for everyone." He added, "I'm totally against anybody who tries to control or censor Twitter or any other social media, even if it is governments. It's a losing war."

Twitter’s IPO: 5 questions for Washington

Twitter announced its plans to go public, fittingly, in a tweet. But 140 characters didn’t begin to answer the many questions for Silicon Valley, Wall Street or Washington as the microblogging service prepares for its much anticipated IPO. Read more: http://www.politico.com/story/2013/09/twitter-ipo-five-questions-for-washington-96783.html#ixzz2f0ZCYbHg For starters, the company confidentially filed its paperwork with the SEC, leaving investors and the media speculating about its financials. Estimates of its value range from $10 billion to $15 billion. The public offering could also have implications for Twitter’s growing profile in D.C. (WATCH: Tech leaders say Internet of the future will need D.C. assist) Here are five questions for Washington policymakers as the company moves toward its IPO. Could Twitter’s IPO bomb like Facebook’s? Twitter may want avoid the pitfalls of Facebook’s initial public offering last year. Investors were not impressed with Facebook’s initial share price of $38 and the stock tanked shortly after the IPO over worries about the company’s future earnings — an embarrassing episode for Facebook’s leadership and the banks it employed to bring the company public. More than a year later, the stock price has rebounded and was trading at $44 per share on Friday. Another obstacle for Facebook: Systems at the Nasdaq stock exchange that listed the company’s shares failed on the first day of trading, affecting thousands of orders. Regulators and Congress immediately began looking for answers, and in May Nasdaq paid a $10 million penalty. It was the SEC’s largest ever settlement with an exchange. “I’m probably the person you’d want to ask last about how to make a smooth IPO,” Facebook CEO Mark Zuckerberg joked earlier this week, when asked at a tech conference if he had any advice for Twitter. (Also on POLITICO: Zuckerberg to meet House GOP) But Zuckerberg added that despite “an extremely turbulent first year,” going public “made our company a lot stronger.” Will Twitter’s IPO validate the JOBS Act? The way Twitter is approaching its IPO will help further fuel the debate around the effectiveness of the Jumpstart Our Business Startups Act. Twitter said it confidentially submitted its planned IPO documents to the SEC. The JOBS Act, a rare example of bipartisan legislation that President Barack Obama signed into law last year, allows so-called emerging growth companies to keep the details of their planned public offerings under wraps before they go to market. This discretion is reserved for companies whose annual revenue is less than $1 billion. House Republicans have made the SEC’s implementation of the JOBS Act a priority and have criticized the agency for taking too long to finish writing rules from the law. (Also on POLITICO: Silicon Valley takes aim at Rep. Honda) The outcome of Twitter’s IPO will provide fodder for policymakers and regulators as they evaluate the law, and may guide how it’s applied in the future. Will Twitter go big on lobbying? Twitter has had a very minimal presence in D.C., in sharp contrast to other high-profile Internet companies like Google and Facebook, which have been steadily growing their lobbying shops. But becoming a public company — with a broader set of political and regulatory interests — could change that dynamic. The microblogging service has taken recent steps to boost its Washington operation. The company last month announced plans to form a political action committee, Twitter#PAC, and registered a lobbyist for the first time to work on issues like patent reform, privacy, Internet freedom and net neutrality. The lobbyist, William Carty, served as a Republican Senate Commerce Committee aide and joined Twitter’s office in Washington as its second public policy staffer last fall. (Also on POLITICO: Tech still pressing on immigration) The microblogging service has been “trying to stay under the radar. But when you become a publicly traded company, those things change,” said an Internet industry lobbyist in Washington. “Their whole business model will be at stake. And decisions made in agencies and on the Hill will matter to the bottom line and the ultimate success of their company.” Will the company have new privacy problems? As a publicly traded company, Twitter will face pressure from investors to further maximize its advertising revenue. And that could spark interest from D.C. privacy hawks alarmed by online advertisers’ data-collection practices. “As it goes public, Twitter’s new job will be to please large advertisers and help them better use social media to target consumers,” said Jeff Chester, executive director of the Center for Digital Democracy in Washington. “Twitter will need to re-examine its privacy policies to make sure users have complete control of their information when it relates to their finances, health, children, ethnicity, etc.” Twitter, with more than 200 million users, primarily makes money from selling ads such as “promoted tweets” in people’s feeds. It is expected to earn about $582 million in global ad revenue this year, according to estimates from research firm eMarketer. And Twitter is zeroing in on the mobile market. This week, it bought MoPub, a mobile ad exchange. Will Twitter spark new financial disclosure methods? Twitter broke the news of its IPO plans with a tweet yesterday. “We’ve confidentially submitted an S-1 to the SEC for a planned IPO,” the company wrote in the post. “This Tweet does not constitute an offer of any securities for sale.” In doing so, it added to the emerging debate over companies sharing corporate information on social media — a phenomenon that has drawn some attention from regulators. The SEC last year examined a Facebook update by Netflix CEO Reed Hastings that caused Netflix stock to jump. Hastings posted a statistic about video streaming by Netflix customers. Ultimately, the agency decided not to pursue any action against Hastings and said companies can use social media to announce key information — as long as they alert investors where it will be released. Read more: http://www.politico.com/story/2013/09/twitter-ipo-five-questions-for-washington-96783.html#ixzz2f0ZKAvTO

140 reasons to worry about Twitter IPO

SAN FRANCISCO — Twitter's use of a new type of confidential filing to test the IPO waters makes clear how recent changes to U.S. securities laws have given companies more control of their initial stock sale — yet have also resulted in less transparency for retail investors. The company's decision to use its own service to announce it filed the secret registration document — but not disclose its financials — is also a bit ironic, given that Twitter's technology has the potential to provide greater transparency on public companies. The confidential filing does nothing for investors except to stoke the IPO hype machine, even as it accomplishes two key things for Twitter. First, it allows executives of the San Francisco-based company to begin talking to big-money investors about its potential stock sale. Second, Twitter can now get feedback from securities regulators regarding how it reports revenue and expenses — outside the glare of the media spotlight that typically falls on high-profile tech IPOs. This can spare the company some embarrassment — and help it maintain credibility with investors — if those regulators should find problems with Twitter's accounting. Many initial IPO filings made by upstart tech firms contain such errors. For example, Groupon was forced to amend its S-1 filing three times in the run-up to its IPO, executed in November 2011, after the Securities and Exchange Commission rejected the way it accounted for revenue. If the changes to the IPO process enacted as part of the 2012 JOBS Act had been in place then, investors would not have known that the company's top executives were including the payments that Groupon makes to merchants in the company's own revenue figures. That was key information, because it showed that the company's business wasn't as large as many had believed during the time when Groupon's shares were being bid up in private markets, before its IPO. Even with the revisions to revenue, the Groupon offering was a complete disaster for its IPO investors, who watched the stock surge more than 40% on its first trading day — then lose 80% of its value during its first year of public trading. Other past mistakes by high-profile tech companies have been less weighty, yet have still delayed the IPO process. In early 2004, regulators at the SEC required Salesforce.com to change how it accounted for commissions paid to its sales staff, before they would let the software company's initial stock offering proceed. The company's innovative business model was largely to blame for that gaffe. Because software companies typically sold their products via long-term license agreements, accounting for commissions paid for on-demand subscription sales was still a gray area. That same year, Google was forced to amend its S-1 filing by including in its prospectus a poorly timed interview that company co-founders Sergey Brin and Larry Page had granted to Playboy magazine. In that case, it's easy to argue that the required S-1 revisions were made necessary by the inexperience of the company's founders, who should have passed on the interview in the run-up to Google's S-1 filing. Yet, high-profile tech companies often have innovative business models and are often led by relatively young executives. That's as true of Twitter as it was for Google, Salesforce.com and Groupon at the time of their IPOs. It's also one of the reasons Silicon Valley executives, venture capitalists and other investors lobbied hard for passage of the Jumpstart Our Business Startups (JOBS) Act. Their argument was that fast-growing, young companies wanting to raise capital should face a less cumbersome path to an IPO. In the end, the securities law changes included in the 2012 JOBS Act accomplished exactly that. But the Facebook initial stock sale in May of last year — another tech offering that saw retail investors suffer huge losses on their IPO shares — showed just how skewed the process was against retail investors — even before the recent changes. Before Facebook's IPO shares were priced, the company shared with some big Wall Street investment houses the fact that its mobile advertising business wouldn't be as profitable in the short term as many analysts believed. Those investors then had the option of passing on the IPO. But that information wasn't shared with all investors at the same time, because companies in the IPO registration process are exempt from the full disclosure rules (known as Reg. FD) that apply to already-public companies. Only after Facebook shares began to plummet did retail investors learn that Wall Street wasn't as bullish on the company's mobile business as thought. Facebook has since gotten better at selling mobile ads, and its stock has recovered its IPO price, and then some. But the heavy losses suffered by Facebook IPO investors showed that the process was in need of more financial transparency, not less. Yet, less disclosure is what the public got, as Twitter's move this week makes clear. Instead of getting detailed information about the company's finances and business operations, retail investors got a single tweet. Welcome to the future of IPO investing. John Shinal has covered tech and financial markets for 15 years at Bloomberg, BusinessWeek, the San Francisco Chronicle, Dow Jones MarketWatch, Wall Street Journal Digital Network and others.

With Facebook’s Tumultuous I.P.O. in Mind, Twitter Tries to Value Its Shares

It has more than 200 million active users. It played a central role in the protests against governments in the Middle East a couple of years ago. And it appeals to a generation of Internet users who relish publicly expressing themselves in short bursts of 140 characters or less. But how much is Twitter really worth? That is the question investors will have to grapple with as Twitter’s bankers begin the task of selling shares in the company in the coming weeks. With enthusiasm for Internet companies — and in particular, social media firms — heating up again, Twitter may have little trouble persuading buyers to pay up. But Facebook’s botched I.P.O. last year, and the drubbing its shares suffered in the ensuing months, show that even the most highly anticipated technology offerings can swoon badly. One aspect of Twitter’s I.P.O. could hamper investors’ ability to determine the right price for the company. The company is taking advantage of a law approved last year that allows it to keep its financial data confidential until three weeks before its shares are marketed. Facebook released financial statements three and a half months before its stock offering in May 2012. That gave investors ample time to weigh Facebook’s prospects before deciding whether to participate. “I see no reason why Twitter should not open its books to public scrutiny,” said Anup Srivastava, an assistant professor at the Kellogg School of Management at Northwestern University. “Why wait until the last minute?” Until the official Wall Street sales pitches begin, outsiders only have minimal information to go on. One piece of data is an estimate of revenue, which Twitter records when it charges for the advertisements that are inserted into users’ streams of messages. It also licenses user activity data to outside firms. Twitter’s revenue is expected to reach nearly $600 million this year, according to internal projections and the research firm eMarketer. Investors are using that figure as a starting point for arriving at an overall value for the company. Today, for instance, the total value of Facebook’s shares on the stock market is about 15 times the revenue that analysts expect the company to post this year. Applying that multiple to Twitter’s forecast revenue of $600 million this year values the company at $9 billion. This is an imperfect approach, since it ignores costs. Also, 15 times is more than double the sales multiple for Google, which has long been the Big Daddy in Web advertising. Mr. Srivastava is skeptical of the high valuations placed on relatively young companies. “It looks like the Internet bubble all over again,” he said. But the doubters are likely to be drowned out. Bullish market participants find it easy to make their case when companies like Twitter appear capable of posting high growth rates into the foreseeable future. Kevin Landis, chief investment officer at Firsthand Funds, which bought Twitter shares on the private market, is an optimist about the company. He said there were reasons Twitter should have an even higher valuation than Facebook. For instance, Twitter, he said, already has a strategy for mobile devices. Facebook was still working out its approach to mobile devices when it went public. And since it is a younger company, Twitter may also be able to increase its earnings more quickly than its established rivals. “What people are doing when they buy a growth stock is asking where the company might end up, ” Mr. Landis said. Advertising dollars pour into Facebook and Google because people spend so much time on those companies’ Web pages. Twitter has substantially fewer users, but it must nevertheless try to convince advertisers that its users are as valuable. One reason companies say they use Twitter is that it offers them a chance to interact quickly with trends and “conversations” that take place on the service. Such campaigns can also be timed to coincide with prominent events on television. Honda advertises on Twitter and used it as part of a broad summer campaign that helped generate 20 percent more in auto sales this July than in July 2012. “Twitter certainly contributed to that,” Alicia Jones, a social marketing manager at Honda, said. Still, Twitter may yet hit choppy waters. Its short-message format does not appeal to everyone. If it fails to add large numbers of new users, it may be perceived as a niche player. To branch out, Twitter will mostly likely have to spend a lot of money on new technology. Facebook had to spend substantial sums to support its mobile initiatives. Those appear to be paying off now, but they are a reminder that expansion into new areas can be costly. Anyone sizing up Twitter as an investment needs to estimate how much the company may have to spend to stay relevant on the Internet. The credibility of Twitter’s top officers, including its chief executive, Dick Costolo, will be tested during the I.P.O. process. Michael Pachter, an analyst with Wedbush Securities, said Twitter could learn from some of Facebook’s missteps. Facebook executives, he said, had not been sufficiently open about the company’s activities, and had not given enough detail on the company’s expenses. “Let’s hope Twitter understands that it has to court investors,” he said. As the conversation about Twitter intensifies, investors may be wise to keep Facebook’s turbulent past in mind. Buying shares at the I.P.O. led to losses, though shares in Facebook are now higher than the offering price. But being bearish as the company recovered also was a bad bet. The dilemma boils down to this: What should investors pay for a seemingly well-run and popular company? Or as one Twitter user, @EpicureanDeal, posted on the service on Friday: “Re Twitter’s IPO: you need to understand that a good firm, a profitable firm, and an attractive stock investment can be 3 unrelated things.”

Twitter heads for stock market debut by filing for IPO

Twitter, the social media site that has come to chronicle everything from world events to everyday lunches, announced on Thursday that it intends to make its stock market debut. The confidential filing – revealed, naturally, in a tweet on the company's official account – sets into motion one of the most anticipated initial public offerings in tech history. It has also been one of the most coyly sidestepped topics by the company's executives. Recently, Twitter CEO Dick Costolo spoke at the AllThingsD conference in July where he compared the constant questioning about an IPO to sports: he portrayed himself to a football player trying to catch a pass, "while people are yelling at him from the sidelines asking him, 'What are you doing after the game?'" according to the site. It is likely that Twitter was forced to file for an IPO because, like Facebook, it had enough private investors that regulations required it. The Jobs Act, passed in 2012, requires a company in the US to go public if it has more than 2,000 private investors. Earlier this summer Costolo said he objected to "short-term thinking" about revenues. Twitter's confidential filing indicates that it has under $1bn revenues. Under the rules of the Jobs Act, only companies with under $1bn in value may file secretly; bigger companies have to file public documents. Once the contents of the filing are revealed, they will also shed light on one of the most mysterious questions in tech: the mystery of how Twitter – which thinks of itself as "the global town square," in Costolo's terms – plans to make an appreciable amount of money. The company claims 200 million users sending over 400 million tweets daily, nearly 60% of those through mobile devices like smartphones. Earlier this summer Costolo said he objected to "short-term thinking" about revenues, and the company is thought to have less than $1bn in revenues. Despite its reach, many have found deducing the company's value to be difficult. In January, when the investment firm BlackRock bought a stake, Twitter was estimated to be worth $9bn; by May, estimates of Twitter's value had ballooned to $10.5bn, according to GSV Capital Corp. None of those numbers are likely to be the size of the IPO. Companies traditionally sell less than 20% of themselves when they debut on the public markets. Twitter was seen as setting the IPO into motion last year, when it completed a cluster of acquisitions to centralize its power over the distribution of tweets. Twitter is the last in its class to go public. Other big media companies, including Linkedin and Facebook, already command billions of dollars of value in the public markets. Linkedin is worth $32bn in stock while Facebook's market value is $108bn. On Wednesday Mark Zuckerberg, the co-founder of Facebook, was asked at a Tech Crunch conference whether he had any advice for Twitter when it goes public. He said that the IPO process "is actually not that bad." As a public company, Twitter will be under pressure to show innovative ideas to make money. One analyst believed the company could take its cue from Facebook, which eased advertising into the social stream of its users and raised its revenues as a result. "When they price the stock, the price will be based on something more than hopeful dreams," said Roger Kay, founder of Endpoint Technologies Associates. "If they start to put ads in, it's going to change the user experience. They haven't educated their users to accept the presence of ads." If Twitter manages to find a sustainable business model, some analysts believe the company has a better chance in targeting its ad efforts to businesses rather than charging consumers. Nate Elliott, an analyst at Forrester Research, noted that Twitter has wooed marketers, for instance, by debuting "Twitter Cards," which allow tweets to show not just text but also larger photos and video within the site. That feature is often used by companies wishing to advertise prominently on Twitter or showcase clever ad campaigns without forcing users to click on a separate link. Twitter has also tried to lure companies that advertise on television shows to see the site as a "second screen" where users can chat about TV and current events in real time. Elliott noted that effort "has not been a success" financially but shows Twitter's willingness to experiment with ways to make money.

Why Twitter's IPO Won't Be Like Facebook's IPO

Twitter’s tweet announcement that it had filed for its long-awaited IPO has quickly drawn a lot of comparisons to Facebook FB -0.98%’s initial public offering. It is the most anticipated IPO to come out of Silicon Valley since Facebook and features a social media company with a multi-billion dollar valuation. But Twitter’s IPO probably will not result in the kind of disappointment that followed Facebook’s IPO, a controversial roller-coaster ride that saw shares of Facebook get decimated before finally staging a stunning comeback more than a year later. The big reason for the Facebook IPO fiasco was that Mark Zuckerberg resisted taking his company public for too long. He was afraid of the pressures that come with being a public company and was very mistrustful of the demands that stock market investors and regulators make on publicly-traded companies. Just this week, Zuckerberg admitted he had been too afraid to get over the IPO hurdle. “I’ve been very outspoken about staying private as long as possible,” Zuckerberg said at TechCrunch Disrupt. “I don’t think it’s that necessary to do that.” To his great credit, Zuckerberg not only overcame a very challenging post-IPO period as he successfully transitioned Facebook to being more of a mobile business, he also learned something from the process and recently gave this advice to Twitter. “I’m the person you would want to ask last to do a smooth IPO. It’s actually a valuable process. Having gone through a terrible first year as it made our company a lot stronger. You have to know everything about your company. It took us to the next level and we run our company much better now.” Twitter is going public sooner than Facebook went public. Zuckerberg waited more than eight years to conduct a Facebook IPO and by the time he made the decision to go public there was so much hype and pre-IPO money invested in Facebook that it almost made the IPO unmanageable. It seems like Twitter’s IPO will happen more than seven years after its founding. That might not seem like a big difference, but imagine if Facebook had gone public in 2011 as opposed to 2012. Goldman Sachs made its investment in Facebook in 2011 at a valuation of $50 billion. A year later, the hype machine was in full force and Facebook went public at a valuation of $100 billion. Twitter is currently believed to be worth between $10 billion to $20 billion. Twitter is also going public at an earlier revenue stage than Facebook, which is important because Wall Street likes to see growth more than anything else. Twitter filed its IPO confidentially, a new feature in the stock market that has been created by the so-called JOBS Act. The only way Twitter could have taken advantage of the JOBS Act is if it’s annual revenue is less than $1 billion. Facebook posted $3.7 billion in revenue in 2011, right before it filed its first document for its IPO with the Securities & Exchange Commission in February 2012. Twitter has more room to run up its revenue and valuation in a big way as it starts life as a publicly-traded company. The Twitter IPO will be different than Facebook’s IPO for other reasons, too. Morgan Stanley MS +0.39%’s powerful tech team, which led the Facebook IPO, will not be the lead underwriter for the Twitter IPO. That role will be filled by Goldman Sachs. This is a big change in Silicon Valley, where Morgan Stanley has ruled the hottest tech IPOs in recent years, like the IPOs of Facebook, Groupon GRPN -0.56% and Zynga. All three of these IPOs did not go well. It’s not clear yet if Twitter has picked an exchange to list on, but another difference would be if the company chooses to move away from Nasdaq, which for years has been the exchange of choice for Silicon Valley. Nasdaq was widely criticized for its role in the botched Facebook IPO and Nasdaq paid a $10 million penalty to settle SEC allegations stemming from its “poor systems and decision making” during Facebook’s IPO. One thing is certain: Dick Costolo, Twitter’s CEO, won’t be showing up for the Wall Street road show in a hoodie.

How to get a piece of Twitter's IPO

Investors looking to buy into the much-anticipated IPO of Twitter are going to have some waiting to do before seeing if there will be any shares for them. Details are still scarce on the initial public offering of Twitter, since the company has only provided its registration privately to the Securities and Exchange Commission. Investors are still waiting for details on how many shares of the social media company will be offered, the timing of the offering and the price of the shares Typically, IPOs of much-anticipated IPOs are doled out by the investment bankers running the deal to their favored clients and long-standing customers. Individual investors interested in buying shares usually have to purchase them in the open market once trading begins. But experts are thinking Twitter may likely follow the lead set by Facebook and other recent IPOs in holding back some shares for individual investors. With most recent IPOs, there will usually be about 20% of the share outstanding held back for individual investors, says Jay Ritter, professor of finance at the University of Florida. In Facebook's case, the number was actually higher, 25%, because demand for large institutional investors weakened as the deal neared. Many large investors were turned off by Facebook's lofty price range, the large number of shares being offered and its questionable future in mobile, and pulled back their purchases. Facebook raised more than $16 billion in the largest Internet IPO in history, Ritter says. Investors interested in getting a piece of Twitter will need to check with their brokerages over the coming months to see how many shares, if any, will be available to them. Most large online brokerages, including TD Ameritrade, Fidelity and Charles Schwab, have deals with underwriters that allow them to get allocations to certain IPOs. More details will be revealed after Twitter officially files its IPO registration statement for the public to see. If the deal is sold in early December, as Ritter suspects it might be, brokers will get more details of how many shares they will have in November or perhaps earlier. Interest in shares will likely be strong, especially since shares of other social networking companies have been rallying this year, Ritter says. "Twitter is definitely benefiting from the recent stock market gains of other social networking companies," he says.

With a tweet, Twitter kicks off next big tech IPO

Twitter said Thursday that it filed for an initial public offering, setting the stage for the most high-profile technology stock market debut since Facebook's troubled share sale last year. Twitter announced the filing on its own social media messaging service, saying: "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." The company followed that up with a second tweet, saying "back to work" and attached a photo of employees at Twitter headquarters in San Francisco. The tweets were swiftly re-tweeted thousands of times and set off viral chatter across Silicon Valley, where many of the venture capitalists who backed Twitter are based. George Zachary of Charles River Ventures thanked Twitter founders Jack Dorsey, Evan Williams and Biz Stone and CEO Dick Costolo. "Still hold every single share from our first-round investment," Zachary tweeted. "My over/under for Twitter at end of first day of trading: $25B," tweeted David Sacks, a former PayPal executive and founder of start-up Yammer, which Microsoft bought for $1.2 billion last year. "This is one of those exciting moments in the Valley," said Kevin Hartz, CEO of start-up Eventbrite, who has invested in several other successful start-ups including PayPal, Pinterest and Airbnb. "It's just a financing event for Twitter, but it does demonstrate the next step in the life of what is an emerging Internet giant." Twitter, created in 2006, has turned into a new form of communication used by presidents, corporate chieftains and smartphone-wielding kids alike. The company has only recently started to generate serious revenue by showing ads in the stream of other tweets users see. But these initiatives have gained traction: Twitter will haul in $583 million in advertising revenue for 2013 and hit $1 billion in 2014, according to eMarketer. "It makes sense that they are doing an IPO with those numbers. It's a great time for them to raise money," says Gartner analyst Brian Blau. The filing is also timed as the fourth quarter approaches — a traditionally strong period for social media activity and related advertising, according to Sam Schwerin of Millennium Technology Value Partners, which owns a small stake in Twitter.