“Public or private?” That’s the $64,000 question for Twitter.
There’s certainly plenty of reasons not to go public. For one, the offerings for other mega-online operators — such as Facebook (NASDAQ:FB), Zynga (NASDAQ:ZNGA) and Groupon (NASDAQ:GRPN) — have been underwhelming, while Twitter has had no problem raising money on the venture capital front.
And being a public can be distracting — a company has to shift its focus on growing on a sustainable basis, which is far from easy for a newer business model.
And yet, despite all this, an IPO probably is the best endgame for Twitter. Here’s why:
Benefits of an IPO
First off, going public is something of a baptism by fire that forces management to exercise more discipline, finding the right balance between serving the customer and monetizing the business. Anything less will show up in the numbers and prompt investors to dump the stock, plain and simple.
Facebook CEO Mark Zuckerberg certainly learned this last year. Before he took the company public, he ran the operation more like a nice service for society, not necessarily a business. But when Wall Street disagreed to that approach, Zuckerberg took swift measures to improve revenues, such as by adding a new ad system, introducing the gifts e-commerce system and getting more aggressive with mobile. Wouldn’t you know it — the stock recovered somewhat from its initial plunge.
Also, going public can allow a company to use its stock as a currency of sorts in the mergers & acquisitions sphere, which can be a critical growth driver. Take Google (NASDAQ:GOOG), for example. By going public, Google was able to leverage its cash and stock to make buyouts like YouTube, DoubleClick and AdMob happen — deals that have greatly improved the company.
Twitter Needs to Go Public — Now!
Twitter has been mindful of these factors already. The company has been more focused on monetization over the past couple years, and its revenues are estimated to hit $800 million for 2013.
Better yet, this could be an underestimation. Twitter recently launched its Ads API system — similar to Google’s highly successful AdWords program, this system makes it much easier to buy advertising and could prove to be a revenue gusher.
Twitter also has made some savvy acquisitions, such as the purchase of Vine, which has turned out to be a big hit in mobile video.
While all these are good, the problem remains that Twitter still seems to lack the same discipline as many public companies in its sphere. Consider that its advertising analytics are still not robust — at least compared to Google and Facebook. The company theoretically could have a field day by putting Big Data to work on its massive tweet base.
Twitter also could experiment with premium services, such as for consumers and enterprises. This has been a winning strategy for LinkedIn (NYSE:LNKD), which charges users to see who is viewing them or to make direct contact with members.
The timing couldn’t be better right now given how bubbly the markets are — investors would gobble up shares in a heartbeat. That means Twitter could make the most of an offering, which seems like the best next step toward the company’s long-term success.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of “How to Create the Next Facebook” and “High-Profit IPO Strategies: Finding Breakout IPOs for Investors and Traders.”Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.