On Thursday, September 12th, Twitter announced its filing of confidential papers with the Securities and Exchange Commission to begin the IPO process, taking many industry watchers by surprise.
It is not yet clear how Twitter will price its stock at its debut but the current thinking among its leadership is to be more conservative than Facebook. It wants to avoid overpricing its shares or offering too many, unlike LinkedIn (LNKD) and Workday (WDAY), which both saw their stock soar after their debut.
Twitter chose Goldman Sachs Group Inc. (GS) as the lead underwriter for its offering, over Morgan Stanley (MS), which advised Facebook for its debut in May 2012. However, it has not yet been decided which additional banks will be involved in the process. A personal familiar with the board and executives has reported that Twitter is in the process of discussing plans with Bank of America (BAC), Merrill Lynch and J.P. Morgan Chase & Co. (JPM) and Deutsche Bank (DBK.XE).
Some of the discussions with the banks included possible extensions of credit to Twitter. Loans would be used for general working capital and to pay taxes incurred when employees’ stock options vest.
In addition to these precautionary measures, I believe that Twitter has also chosen the right time. At the time of its IPO, the rival Facebook had already reached a high number of users (about a billion) and it was struggling with the transition to mobile ads, lowering investors’ expectations of growth on Facebook’s mobile services. On the other hand, according to external indications, Twitter’s mobile ad revenues are constantly growing. Earlier this week, Twitter also purchased for $350 million a mobile advertising firm – MoPub – which, selling ads across a broad swath mobile of properties, will give the Twitter a revenue stream beyond its own services.
With 200 million monthly users, analyst firm eMarketer expects Twitter’s ad revenues grow from $583 million to about $1 billion next year.
It will be interesting to follow further announcements by the board these coming weeks. The precautious approach and examples from previous IPOs in the industry seem to put Twitter on the right track to its initial public offering.
By, Lalit Kumar