Twitter IPO: sink or swim?

Coren Hanley

25 October 2013

Following months of speculation throughout 2013 Twitter has stolen the headlines over the past few weeks with news of its upcoming IPO. Will it sink like Facebook did initially? Or has Twitter learnt from Facebook’s mistakes and have a more successful stock market flotation?

Here’s what we know:

  • Twitter is expected to start floating on the stock market in November – hopefully a nice early Thanksgiving present for Twitter’s founders
  • It will trade on NYSE under the symbol “TWTR” – a controversial move; NASDAQ is usually the market of choice for tech brands
  • Twitter hopes the IPO will raise up to $1.6 billion, valuing the company at up to $11.1 billion
  • It plans to sell 70 million shares priced at $17-20 – a bargain compared to Facebook which priced its shares at $38

Looking at the facts, Twitter’s IPO seems to hold more potential than Facebook’s, which is arguably one of the most talked about IPO failures to date. Facebook had a number of factors against it, albeit not all within Facebook’s control: a high share price and high volume of shares, the financial crisis and issues on NASDAQ’s side to list just a few. Twitter, on the other hand, will trade at a much more modest price, at a time when confidence in the financial markets is being restored, has selected NYSE over NASDAQ, and even held a "mock IPO".

Facts aside, the success of Twitter’s IPO depends a great deal on its growth prospects and some much needed improvements to its advertising model. Although Twitter is still growing as a platform, its growth rate is slowing; seeing 6% growth in Q3 2013 vs. 10% growth in Q1 2013. Arguably, its move into the more mainstream media such as TV will help grow its user base, as it becomes the second screen platform of choice. And as Twitter draws in more users, this should attract more advertisers – more users means more eyes, means higher reach, right? Maybe not. People (and brands) have multiple accounts on Twitter. What Twitter needs to determine, and what advertisers need to understand, is just how many unique accounts are active on Twitter.

But attracting more users alone will not lure in the advertisers; Twitter may also have to make improvements to its advertising model. While Twitter already has a fairly strong advertising offering, especially on mobile where 70% of its ad revenue comes from, it’s still leaps and bounds behind the likes of Facebook and LinkedIn. I see two obvious options for Twitter: the first would be to offer more targeting options. Twitter’s current ad targeting is not quite on par with Facebook and LinkedIn, which both offer strict targeting enabling advertisers to reach specific audiences. But for Twitter this might be a challenge as it doesn’t capture as much user data as Facebook or LinkedIn. An alternative would be for Twitter to offer more prominent advertising space. Currently, adverts on Twitter sit comfortably within a user’s Twitter stream, Trending Topics or list of “who to follow”, and can easily be ignored by users. Twitter might decide to make these more prominent, but that is where it puts user numbers at risk. Intrusive adverts can be irritating, especially if deemed irrelevant.

All eyes will be on Twitter over the coming weeks, but I think Twitter is in a good position with its IPO. Twitter isn’t as big as Facebook, and despite high revenues still has some way to go before it begins to turn a profit; but this is reflected in its lower share price. Listing shares at a price on par with Facebook would no doubt lead to failure – an embarrassing situation Twitter definitely wants to avoid.