Late last night, Twitter announced that it had priced its IPO at $26 a share – above the $23 to $25 range announced on Monday putting the firm’s value at around $17bn.
“We’ve priced our initial public offering of 70,000,000 shares of our common stock at a price to the public of $26 per share,” a Twitter statement read. “In addition, we’ve granted the underwriters a 30-day option to purchase up to 10,500,000 additional shares of common stock.
“Our shares are expected to begin trading on the New York Stock Exchange on November 7, 2013, under the symbol ‘TWTR’”, it added.
This put the finishing touches on one of tech’s most eagerly awaited public offerings. With initial value figures predicted at anywhere between $10bn and $15bn, this represents a vote of confidence in the micro-blogger.
Plenty of conjecture and opinion has fuelled the IPO, with this organ prophesising that Twitter would fare better than Facebook because it has more of a naturally mobile first outlook, which would make sense to investors moving forward.
“Facebook has been scampering to alter its strategy to become mobile first, whilst Twitter has been mobile first for almost as long as it’s been around,” we wrote.
Yet not everybody’s convinced it’ll be a wise investment. The Daily Telegraph Questor column last night urged prospects to avoid the social network, saying: “The number one rule in investment is the preservation of capital – and there is no harm in letting this opportunity pass by.”
The reason for Questor’s reticence is simple: Twitter is going public having never made a profit. Specifically, the company posted a loss of $64.6m in the third quarter of 2013, down from $21.6m in the red at Q312.
Eden Zoller, principal analyst at Ovum, said that while social and mobile were “sweet spots” for the investor community, the lack of profit aligned with a smaller user base than Facebook makes Twitter a high risk play.
“It is critical for Twitter to move quickly and effectively post IPO to address the challenges it faces in achieving growth and profitability,” Zoller said.
“Twitter needs to step up and deliver on the expectations that are fuelling its valuation, and show that it has what it takes to provide a sustainable business model,” she added.
Zoller did note, however, that in terms of mobile advertising Twitter was “ahead of the curve” compared to Facebook’s float, describing it as “promising”.
“Twitter must ensure it builds momentum behind mobile,” she said. “But this will not be easy as Twitter faces competition from an increasing number of home-grown social network and instant messaging services, particularly in Asia where the likes of WhatsApp, Kakao and Line are very popular.”
The natural reticence of the market may not be a surprise, given how Facebook initially struggled.
Mary Jo White, chairman of the US financial regulator, warned – without naming names – that tech companies’ growth patterns were confusing investors. Given Facebook is now trading at a higher price than its original float – and Twitter’s exact share value was never a done deal – she may have a point.
But what can Twitter offer, besides mobile?
“Twitter has a unique set of big data which can give advertisers and salespeople the power to connect with the right people at the right time,” said Chris Andrew, MD Europe and UK at Hearsay Social.
He added: “It is proving to be an invaluable platform for companies to build relationships and reach their customers on a one-to-one basis, and the growth that will come through its IPO will only increase those opportunities.”
The power to ‘connect with the right people at the right time’ makes one instantly think of LinkedIn, who of course floated back in 2011. Yet given Forrester recently slammed Facebook for its ad solutions, Twitter’s advertising certainly has potential. Bruce Daisley, speaking to an audience of delegates at Social Media World Forum in March, explained that “brands are starting to use Twitter as [a] principal outlet for customer service.”
Zoller’s analysis that social is gold dust for traders is on the money. But, given Twitter and Facebook have 98% market saturation among big brands, it’ll be a long way to go before the likes of Pinterest and Instagram – used by 71% of large companies – join them.
For now, Twitter prepares to ride the social investor wave.
The microblogger hasn’t been as blatant in trying to change the paradigm – remember Mark Zuckerberg rocking up to Wall Street in jeans and hoodie? – but despite fears that the stock market is struggling to value these social upstarts, and the lack of black in Twitter’s account sheet, Facebook’s subsequent rise following a rocky start gives hope to Twitter.
The full filing can be found here. But what’s your view?
