In some cases, it’s best to be second.
Consider Twitter’s upcoming IPO — the company has the advantage of learning from the blunders of the Facebook (FB) fiasco.
Let’s take a look at three things Twitter can do better than its older social-media competitor:
Pick the Right Exchange
Facebook listed its shares on Nasdaq, which turned out to be a bad move. On the debut of the offering, about 30,000 orders got stuck in the system because of computer glitches — this flub was partially responsible for the lackluster performance of the deal.
Even though Nasdaq has taken steps to improve things, problems remain. The most notable was a recent outage of more than three hours, known as the “flash freeze.”
And the NYSE has some other advantages. If anything, it is the home to many of the world’s largest brands like Chevron (CVX), Coca-Cola (KO), Pfizer (PFE) and Walmart (WMT). These are the kinds of customers that Twitter needs to get the attention from.
Refine Your Business Model
Facebook’s S-1 had a letter from Zuckerberg. In it he waxed about the company’s impact on the world but mentioned little about the business model. There was one quote that summed things up:
“Simply put: we don’t build services to make money; we make money to build better services.”
Well, with Twitter, you should definitely expect some waxing — but also a good amount about monetization. It would not be a surprise to see case studies of how mega brands are getting juicy returns on investment. There should also be lots of details on Twitter’s efforts to create a sophisticated ad system. Interestingly enough, the company recently shelled out $350 million for MoPub, which operates a top-notch mobile ad network.
Oh, and expect to see the word “mobile” used in spades in the S-1.
Be Smart About Pricing
Facebook really messed this up. In early May 2012, the company set the terms on the deal at 337.4 million shares at a range of $28 to $35. But when the company hit the market, it issued 421.2 million shares at $38. All in all, it was too aggressive, especially in light of Facebook’s issues with mobile.
Keep in mind that it’s customary to discount the shares — say by 10% to 15%. This creates a nice profit for investors and creates positive headlines. It’s also a morale booster for employees.
The good news is that it looks like Twitter understands this. For example, the company has taken steps to control the share sales on secondary markets to keep the valuation reasonable (by the way, this is something Facebook did not do). Twitter has also arranged transactions with long-term holders, such as BlackRock (BLK) and Saudi billionaire Prince Alwaleed bin Talal. For the most part, these investors should provide a nice level of stability for the stock price.
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.