The most high-profile IPO since Facebook Inc. is here.
After months of hype, and in keeping with the same circus-like atmosphere that surrounded Facebook's 2012 public offering, Twitter Inc. is expected to finally go public this week. The company's plan would see it issue some 70 million shares on the New York Stock Exchange at a price of as much as $20 (U.S.) per share. The exact IPO price will likely be revealed on Wednesday, with trading to begin the following day.
But beyond the traditional tropes of big tech IPOs – including a first day price pop and the general inability of regular investors to find any shares at the issue price – Twitter's public market debut is also a key moment in the bumpy adolescence of social media companies. Investors will likely view Twitter's financial performance as a guide to the ability of new technology companies to make money from smartphones and tablets, the fastest-growing segment of the technology industry.
Just a few weeks ago, all signs pointed to a blockbuster debut. Twitter's business model is based primarily on getting millions of mobile users to engage with their service, and rival companies with similar businesses had started to benefit from a rise in investor optimism. Facebook, whose stock price struggled in the months after it went public in May of 2012, saw its share price jump from about $28 at the start of 2013 to more than $54 last month. Social media companies, it seemed, had finally figured out how to make investors happy.
But suddenly the picture isn't quite so clear. Last week, Facebook posted quarterly earnings that easily beat analyst expectations. Initially, shares jumped more than 14 per cent in after-hours trading. But as Facebook executives conducted a conference call with analysts later in the evening, the shares lost all that gain, and actually dipped as much as 3 per cent.
That's partly because some investors were spooked by indications the company is having difficulty growing its popularity with teenagers. Facebook shares ended the week below $50. The selling spree is symptomatic of a wider concern that has plagued almost every social media company on the public market, and is likely to hit Twitter as well, eventually – exponential user growth in a company's early years is great, but is it sustainable?
The same question applies to the company's rapid revenue growth. Twitter's revenue, $317-million last year, will double this year and is expected to double again next year, to $1.2-billion. That is spectacular – but is it enough to justify a valuation of $11-billion?
So far, the balance of opinion on Twitter's future as a public company appears decidedly positive.
Earlier this month, Morningstar raised its price target for the microblogging site to $26, a significant increase from the company's expected IPO price range of $17 to $20. The firm said right now, Twitter shares seem undervalued, in large part because the company "has only just begun to turn on its monetization engine for more than 230 million monthly active users."