Will Twitter Become A Public Company Anytime Soon?
Evan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
As the presidential debates between President Barack Obama and Governor Mitt Romney have demonstrated, the power of social media cannot be underestimated. According to statistics from the microblogging social networking site Twitter, 7.2 million tweets were posted during the second presidential debate, with a peak of over 100,000 tweets per minute. Twitter users smashed through records for the most tweets sent in history during political events.
Twitter usage is not only at the highest that it’s ever been, but Twitter itself is rumored to be valued at a staggering $8 to $10 billion. The company’s private stock has been hit by the woes of fellow social networking giant Facebook (NASDAQ: FB).
Some major internet tech companies have gone public recently, only to sputter and lose significant revenue. Facebook is continuing to search for answers to its looming fiscal questions, while Zynga (NASDAQ: ZNGA) is stuck in a dire death spiral. Groupon (NASDAQ: GRPN) and Zynga, are, in fact, the two worst performing stocks of 2012. These stocks empirically prove that the private market is not at all good at projecting the true valuation of internet tech companies.
With the amazing successes of the tweeting microblog website, this poses an interesting question: Will Twitter become a public company anytime soon? We will explore the “bulls and bears” to Twitter joining the list of public tech companies, and then will conclude with the author’s personal opinion on the not-to-distant future of the media giant.
The Bull Case for Twitter Becoming Public
Twitter is arguably in a much better fiscal business position than Facebook, Zynga, or Groupon. Although both Twitter and Facebook draw most of their revenues from advertisements, Twitter ads are arguably much more effective than Facebook ads.
Twitter is much more integrated in the mobile media market than Facebook is. In fact, Twitter is set to beat Facebook on mobile ad revenue generation by the end of 2012. Twitter is more geared towards on-the-go updating and bringing in the mobile advertisement dough – it doesn’t need to struggle to transition to the mobile market because it is already heavily entrenched in that market.
The story of Twitter’s founding and subsequent success is a miracle in and of itself. Sarah Lacy, in the Pano Daily, points out some pertinent information relating to the founding of Twitter:
“Twitter shouldn’t have even been started to begin with. It grew out of the failed podcasting company Odeo. Being spawned out of failure isn’t so uncommon, but the way Odeo ceased doing business was. Founder Evan Williams just accepted [that] this company wasn’t going anywhere and bought out his investors. It was a rare “let’s call a spade a spade” admission of failure in a Valley that has become obsessed with finding soft landings. Had Odeo followed, say, the Digg playbook, its staff and assets could have wound up a part of a lame company like Yahoo!, where any ideas would have withered, and staff would have bided its time until they could leave. That would have included an unknown engineer named Jack Dorsey and a fledgling idea called Twittr. And when Williams did the uncommon nice guy move of buying out his investors at a far more generous price than what Odeo was worth, he managed to keep investors happy and keep Twitter from starting life with a totally screwed up cap table.”
Lacy makes an important point about Twitter’s roots in Odeo: Unlike Digg and Yahoo!, Odeo founder (and later Twitter founder) Evan Williams decided to end his company – an almost unprecedented move in Silicon Valley. Lacy ended her piece with this closing thought:
“The Facebooks and Googles are rare. But if Twitter can actually turn this legacy into a successful, lasting public company, if it doesn’t flame out and become the tale of what could have been, we will have witnessed a singular event in the history of Silicon Valley.”
How does this all play in to the bull case for Twitter? Twitter has had big success against all of the odds. Even though the company has had its share of issues, Twitter has grown into an enormously powerful media empire. With the rising tide of the “Twitterverse,” what’s stopping them from going public? But not so fast; the issues and potential pitfalls of Twitter laid out in the bear case might be cause for second thought.
The Bear Case for Twitter Going Public
Twitter is currently a multi-billion dollar company--but this does not necessarily correlate to future success. As the examples of Groupon, Facebook, and Zynga prove, the private market has had a bad string of luck when predicting the true valuation of companies. Valuation will become more of an issue if Twitter gets closer to offering an Initial Public Offering (IPO), but it is still a large concern.
There is no way that Twitter is actually worth the $8 to $10 billion that the private market has estimated. If Groupon and Zynga have taken 74% plunges, and Facebook has lost nearly half of its initial stock value, then who can imagine what might happen to Twitter if it even dreams about going public.
There was an incredible amount of unwarranted hype surrounding the IPOs of Facebook, Groupon, and Zynga. These tech companies were supposed to usher in a fantastic new era of the techno-internet age on the stock market, but their actual performances have very much underwhelmed investors. Twitter, with its current lack of a concrete product and projected weaker business over the long term, has been viewed as a worse investment than even the “Big Three” of Groupon, Zynga, and Facebook. The “Big Three” is currently looking a lot more like the “Flopping Three.”
Although Twitter might not file an IPO anytime soon, this certainly does not indicate that Twitter might go under or become irrelevant. The company will most likely still be able to generate some revenues and will continue to be a very strong social networking platform overall. But, Twitter is most likely years away from an IPO, if it ever files one. Twitter is still building and developing its business. It should not and cannot bite off more than it can chew – just look at the performance of the “Flopping Three.”
Speaking of the “Flopping Three,” Twitter is also partially reliant on the performance of its fellow social networks and Silicon Valley dwellers. For example, on June 6, 2012, private shares of Twitter tanked 15% after bad news about Facebook. This drop hammered Twitter’s valuation pretty hard. So, as long as the Flopping Three continue to decline and struggle to form their financial identity, Twitter might be dragged down with them. The drag-down effect might be a deterrent for Twitter to offer an IPO.
So, with all of this information in mind, the question must be asked: Will Twitter become public, and if so, when?
It is rather difficult to predict very far into the future due to the fast-paced nature of social networking companies (and of economic activity in general). However, we can draw some indications of where Twitter might be headed, regardless of what might happen in the economy and/or world affairs.
It is my personal belief that Twitter will continue to grow, both as a social networking medium and as a business. Twitter is growing steadily and is rapidly accelerating towards soon offering an IPO. In fact, Twitter’s company executives are planning on making Twitter public as soon as 2014.
Keep in mind that the question I posed at the beginning of this article was not “Will Twitter be a successful public company?” but rather “Will Twitter actually become a public company?” I personally believe that Twitter will become a public company in the not-too-distant future, but the success of Twitter post-IPO is up for anyone to debate. The current state of Twitter foreshadows a possible post-IPO stock price drop similar to that of Facebook.
The recent presidential debates, as well as political uprisings in the Middle East, have demonstrated the vast, incredible power of social networking. Twitter was, in fact, the impetus for the Iranian Green Revolution in 2009 and is a venue where Saudi Arabians can channel their dissatisfaction with the state of affairs in Saudi Arabia. One cannot underestimate the influence that Twitter now holds in the world.
Will all of this inevitably lead to an IPO for Twitter? I believe the answer is “yes.” Twitter still has a long way to go, but Evan Williams and his tweeting crew will soon foray into the public company fray.
EvanBuck has no positions in the stocks mentioned above. The Motley Fool owns shares of Facebook and has the following options: long JAN 2014 $20.00 calls on Facebook. Motley Fool newsletter services recommend Facebook and Yahoo!. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.