Can Twitter’s IPO Avoid Facebook’s Struggles?

by Matt Klassen on September 17, 2013

It looks like popular social network and microblogging service Twitter is moving forward with its long awaited initial public offering (IPO), entering the public market in a time when investors are looking for exciting growth options, clamouring for new leaders in the online sector particularly as some stalwart tech companies like Microsoft and Apple are starting to fade, while others like Dell have disappeared altogether.

While there is growing flurry of speculation amongst some investors regarding Twitter’s valuation—with some market analysts placing the value of the microblogging site at around $4 billion—the fact of the matter is that most will just be excited to get a piece of this ubiquitous service that sees users ranging from The Pope to President Obama, and practically everyone in between.

But of course we’ve seen this sort of enthusiasm before. One hardly needs to be reminded of the pre-IPO hype that surrounded Facebook, with an ever-escalated valuation that ultimately resulted in investors realizing Facebook’s success was built on a shaky foundation with directionless leadership, followed by the epic collapse of the social network’s house of cards. Will such a collapse follow Twitter’s IPO? Only time will tell.

While Facebook has managed to right its ship, establishing a mobile advertising strategy that may actually start generating the company some revenue, what started off as a complete debacle for the social network does seem to be turning around, so even if Twitter’s IPO isn’t a bed of roses, lets remember that it won’t necessarily be the end of the company.

But of course few people are thinking about that now, as for investors the news that a visible, popular, and ubiquitous company like Twitter is going public generates the sort of brainless giddy excitement current boy band One Direction creates in preteen girls.

The excitement surrounding Twitter is all the more fervent because the microblogging site actually qualifies as a “emerging growth company,” meaning it is able to bypass certain disclosure regulations when filing for an IPO, meaning it can keep information about revenue, valuation, and the like to itself until right before its ready to hit the open market.

That hasn’t stopped analysts from speculating about valuation, of course, and as Barry Randall, Covestor model manager, told E-Commerce Times, with an estimated $245 million in revenue generated in 2012, “Assuming 40 percent growth, that should lead to $343 million in 2013…If Twitter is already profitable, then a post-IPO valuation of roughly 12x revenue will give the company a market capitalization of over $4 billion.”

But amidst this growing irrational excitement of investors, lest we forget Facebook’s own IPO, one of the more disastrous public offerings in recent memory, which saw the company’s stock price spiral as investors called for Mark Zuckerberg’s head on a plate. While Twitter does have the luxury of having watched Facebook go through this—and hopefully learn from it—the truth remains that both companies are strikingly similar, internet giants relying heavily on online advertising to generate revenue, although many remain optimistic that Twitter will succeed where so many other online companies have failed.

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Written by: Matt Klassen. www.digitcom.ca. Follow TheTelecomBlog.com by: RSS, Twitter, Facebook, or YouTube.

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