There’s more than a single reason for Twitter going public now, versus — say — in a year or two’s time.
Obviously, its valuation is getting to the point where any new rounds of funding are substantial. Its most recent round, a Series G, was closed in 2011 and saw the company raise an eye-watering US$800-million at a US$8-billion valuation. Any subsequent round would pass the US$1-billion mark and be even more complex to structure.
Obviously, investors — especially early ones — and employees want to cash out. Sure shares can be private traded on secondary markets, but Twitter has strict policies making this difficult. Liquidity is also an issue. Listing Twitter now solves that problem.
Beyond the obvious, Twitter’s practically been forced into filing for the IPO now. All indications are that it’s about to cross US$1-billion in revenue this year, which means that it wouldn’t be afforded the secrecy and protection offered by the JOBS Act. The act allows Twitter to file its IPO privately for regulators to scrutinise, and it limits the amount of details it needs to provide in the S-1 filing.
You can bet that Twitter boss Dick Costolo and the board are absolutely determined to avoid the dog-and-pony show that Facebook endured when it went public in 2012.
It’s almost certainly not going to make the same mistake as Facebook which revealed at the eleventh-hour in a sixth amendment to its S-1 that a shift from the web to mobile was a big risk to its ability to monetise its user base.
In the months leading up to its IPO, mobile wasn’t seen as Facebook’s Achilles heel.
The revision highlighted something the market ‘missed’ and caused doubt and fear to cloud Facebook’s listing. And its taken over a year — and ‘mobile’ at the centre of all its quarterly earnings calls — for the market to finally be convinced of Facebook’s ability to monetise successfully.
Twitter has solved whatever ‘mobile conundrum’ Wall Street will assume exists. Twitter has mobile at its core. More than half its traffic (and revenue!) is on mobile.
And if there was any doubt, whatsoever, the acquisition of MoPub by Twitter last week — cheap as it was in highly-valued scrip — was timed perfectly. Don’t underestimate the signal the deal will send to Wall Street.
And the simplicity of Twitter’s business will mean it’ll avoid being forced by regulators to amend its S-1, a la Groupon or Zynga.
Twitter is not Facebook.
Some commentary suggests a publicly tradable Twitter should be thought of as a ‘LinkedIn’.
Both comparisons are wrong. Twitter is Twitter. It’s a real-time information network. Not a micro-blogging site. Not a social network. This is going to be the toughest part for Wall Street to figure out. But, then again, many traders, hedge fund managers, analysts are addicted to Twitter. They ‘get’ it. They understand how powerful it is.
Twitter is sure to rush towards its IPO as quickly as possible. No drawn-out investor roadshows. No endless revisions to its S-1.
Markets are getting frothy. It will surely not want to go public with Facebook soaring far beyond its IPO price (it’s taken more than a year to get back to ‘step one’). It sounds counter-intuitive, but it’s not. The more stretched the valuation, the more risk there is for the price to collapse at the slightest inkling of ‘bad’ news.
Global markets are at or very near to all-time highs. This is probably as good a time as ever to go public and Twitter knows that.
Of course, what this means to us Twitter addicts remains to be seen. But expect the focus on revenue generation — ie. ads in every conceivable context — to be dialed up… Just ever so slightly.