Twitter will begin trading stock to the public on Nov. 15 under the ticker symbol “TWTR,” according to a registration statement with the Securities and Exchange Commission. This marks the biggest financial occasion yet for the micro-blogging social media platform, which boasts more than 200,000,000 monthly active users.
Speculation surrounds the value of an initial Twitter share. The most obvious comparison, Facebook, experienced a roller coaster the first few months as a public company before settling into a successful groove. Technology IPOs are sexy stock picks, but unless they eventually turn a profit, investors are buying fools gold. Twitter, perhaps more than any of its tech counterparts, has the chance for long-term success.
Most of what we know about Twitter’s IPO comes from the company’s S-1 form, which it filed with the SEC on October 3. This document reveals Twitter’s growth (its number of active users has nearly doubled since 2012) and struggles (as of June 2013 it was operating at an annual net loss of almost $70,000). The S-1 also revealed how simple Twitter’s business model really is. It generated 85 percent of revenue from advertising in 2012, and that number has grown in 2013. Twitter admitted that if it loses influence and appeal with advertisers, its business would struggle. That may not be a problem right now, but Twitter would be wise to introduce some alternative revenue streams to off-set its dependence on advertisers.
Perhaps the most intriguing piece of information found in Twitter’s S-1 is the specific number of monthly active users — 218 million, to be precise. That number is under scrutiny by some who claim that millions of Twitter profiles are fake. President Obama recently came under fire when software developers StatusPeople.com revealed that 70 percent of the his campaign account (@BarackObama) followers were fake. If fake followers are wide-spread throughout Twitter, they could impact how investors value the company. Identity theft is not a new problem in the financial world, but few have anticipated that fake social media followers could have an impact on Twitter’s IPO.
The Facebook Saga
Twitter isn’t the first tech giant to go public in recent memory. Their social competitor Facebook grabbed headlines with its IPO in May 2012. The initial offering price for a share of Facebook was $38, and the number remained flat on day one. Over the next three months, however, Facebook’s stock value dropped nearly 50 percent.
Since hitting its low point in August 2012, Facebook has bounced back to rise above its initial value. A share is trading at just below $50. Facebook’s comeback can be attributed to strong earnings reports and a new revenue stream–mobile advertising. We’ll see if Twitter goes on a similarly rocky ride come September, but early fluctuation should be met with a grain of salt.
Despite significant concerns, it’s hard not to get excited about Twitter’s financial future. The simple platform is spread into almost all areas of public life, from news to politics to sports. In its S-1 form, Twitter noted that a local Abbottabad resident live-tweeted the raid on Osama Bin Laden’s compound hours before any traditional media outlets reported the story. This real-time, 140-character engine is still picking up steam. Come November 15, we’ll find out how many investors want to jump on board. In the meantime, have a laugh and check out some of the funniest Twitter accounts to follow, according to Ranker.com.