According to a report in The Sunday Times, Twitter is moving ahead with plans for an initial public offering. The IPO is expected to hit the markets in early 2014 and the valuation is pegged at about $15 billion.
While all of this is good-natured speculation and the IPO market has been known to undergo sudden changes, it is true that the timing for a deal looks spot-on.
Just look at the recent performances of other social operators. For the year, Facebook (FB) has gained 57% and LinkedIn (LNKD) has posted a return of 110%. Heck, even the much-reviled Groupon (
GRPN) is up almost 112%.
Part of the reason for the upwards momentum is that the overall market has been strong and investors have been more willing to take on risks. But on top of that, continued growth in mobile has been pushing these names higher.
No doubt, this is good news for Twitter. After all, the company’s original vision was to be a mobile app, with its focus on 140 characters and nifty features like hashtags. Plus, Twitter has been no slouch about monetization. Revenues are expected to go from $582 million this year to $950 next year, with much of that revenue coming from smartphones and tablets.
Twitter also has the advantage of learning from other high-profile social IPOs. The company knows not get too aggressive with the pricing. As seen with Facebook, pricing too high can result in a big hit to a company’s reputation if the price then plunges.
What’s more, Twitter needs to be conservative with its accounting because there will be intense scrutiny. If there are any perceived gimmicks — which happened with Groupon — it could make a deal a nightmare.
Of course, even though the timing is right, it doesn’t necessarily mean Twitter should pull off an IPO. The fact is that the company would have little problem raising money in the private markets.
But relying on just that would be short-sighted. Many of the top social companies are already public — and that’s no accident. Perhaps the main reason is that it allows for increased flexibility. It can be more efficient to raise money, as seen with LinkedIn’s recent move to raise $1 billion, but also to provide more firepower for acquisitions. That is, a company can use its stock as currency for the purchase price.
Again, the Twitter IPO talk does not mean a deal is inevitable. The tech industry is always full of buzz and rumors that are full of hot air.
But in the case of Twitter, it does make a lot of sense that a deal is near. And even more importantly, the company definitely has all the requirements for a successful offering.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
