Investing

Twitter IPO to avoid Facebook's mistakes

Why history won't repeat itself

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(Photo: David Paul Morris/Getty)

A tweet from the heads of Twitter had the worlds of both media and finance fluttering on Friday.

Now that the news of an IPO is settling in, a consensus is emerging on the street that Twitter has been quite clever in this first public move, using the JOBS Act to confidentially make its S1 filings to the SEC.

Passed into law last year, the JOBS (Jumpstart Our Business Start-Ups) Act now allows companies that qualify as “emerging growth companies,” with revenue of less than $1 billion per year, to submit their IPO filings to the SEC confidentially. The goal is to avoid having the market pre-price the expected IPO before the company actually goes public.

It’s by no means conventional or mainstream for a company to do a confidential filing at this point, said Steven Warsaw, director of investment banking at Miller Tabak & Co. Twitter will now be able to take advantage of its “emerging growth company status” to generate media attention in the lead-up to its IPO, while still shielding itself from the type of IPO pitfall experienced by fellow social media giant Facebook.

Twitter will be able to “effectively keep their offering intentions under wraps, or close to the hip, until they’re ready to come to market,” Warsaw added.

Twitter also has another advantage in approaching its IPO that Facebook didn’t. Zuckerberg’s company was just starting to launch its mobile advertising business when it went to market, leaving questions about the effectiveness of its ads unanswered and investors unconvinced of its share value. Facebook’s since been able to make its way back to its prior valuation in spades, but Twitter might be able to avoid this headache altogether, having already proven the value of its mobile advertising efforts to clients.

The average engagement of Twitter users with ad products is between 3 and 6%, said Clark Frederickson, vice president of eMarketer Inc., which is higher than other websites, including Facebook. And since Facebook is now proving itself to be a boon for mobile advertisers, things are looking up for Twitter.

“As advertisers get more comfortable and prove their ability to buy mobile ads, because of what Google and Facebook are doing, that’s something that Twitter actually benefits from,” said Clark.

eMarketer has predicted that Twitter will earn US$582.8 million in global ad revenue this year, before growing to nearly a billion dollars in ad revenues in 2014.

There’s a lot of room for Twitter to grow, which bodes well for a company that will need to satisfy shareholders with evidence of expansion once it goes public. The social media site’s 200 million users is small relative to Facebook’s 1 billion, but “internationally speaking, there’s still tremendous growth ahead” for the U.S.-centric Twitter, said Clark.

Twitter also recently acquired mobile ad network MoPub, which serves advertisements on several different websites online.

“That’s a very strong statement of intent by Twitter to expand their ad business,” Clark said.

With a mobile ad network infrastructure getting into place, and the potential to grow globally, “you could argue that Twitter’s actually better positioned than Facebook was at this point,” Clark added.