Going public is never easy, but it’s been a particularly difficult hurdle to clear for new media and technology players.
Twitter, which announced a new deal with Comcast on Wednesday, is preparing to raise $1 billion on the public markets. It is dealing not just with investors skeptical about a money-losing company that is spending five dollars to make four, but it’s also trying to expunge the rocky debuts of Facebook, Groupon and Zynga from Wall Street’s memory.
Not helping matters is the fact that while revenues nearly tripled to $317 million last year and its active monthly users top 215 million, Twitter still lost $79 million. Unlike many of those other social media companies, it will hit the open market while operating in the red.
“When it comes to Twitter, there are two things you have to look at — the sizzle and the steak. We know about the sizzle, but the steak is going to take a little longer to find out about,” John Fitzgibbon, the founder of the public offering tracker IPOScoop.com, told TheWrap. “They haven’t put the numbers up yet to justify some of these valuations. They have an interesting concept, but it hasn’t proven to be profitable as yet and their growth rate is slowing.”
If Twitter wants to avoid the mistakes that have plagued recent IPOs, the micro-blogging pioneer will need to better articulate its vision and remain transparent about its challenges.
“What you have is a wary Wall Street that still has a memory of the dotcom bust fresh in its mind,” Brian Solis, a digital analyst at the research and advisory firm Altimeter Group, said. “There is certainly a perception that a quarter billion users is not enough and their operating loss is seen as a challenge.”
Unlike Linkedin, which has seen its stock rise from its initial price of $45 when it went public in 2011 to more than $225 on Wednesday, Twitter is not easily defined. Is it a real time news source? Is it an advertising platform? A promotional vehicle? All of the above?
“It’s an internet company that most people don’t use,” Solis said. “It’s hard to understand for a lot of people and it’s hard to describe even by those people who do use it. Investors, many of whom are older, get what LinkedIn is because they understand the value of business networking.”
Solis advises that Twitter spend the run-up to its IPO explaining its suite of services to the general public in a way that even Luddites can grasp.
Twitter did just that Wednesday in a company post about its new See It feature. Titled “Change the channel directly from Twitter,” the post indicated the company would like to roll out the TV-friendly feature to other distribution partners beyond Comcast, presumably making revenue in the process.
“See It is designed to integrate with other video distribution partners, television networks and websites,” Twitter VP Business Development & Platform Jana Messerschmidt wrote. “We look forward to working with Comcast to extend this offering to other partners who will connect more great content to Twitter.”
Experts say that Twitter should avoid announcements or revelations that undercut its business strategy. Central to that, analysts say, will be explaining why Twitter’s expenses more than doubled in the first six months of the year.
A spokesman for Twitter declined to comment for this article.
Twitter has also continued to spend freely, making splashy acquisitions, such as plunking down $350 million for mobile ad network MoPub in September, and is reportedly looking to double its San Francisco office space in advance of its IPO. There’s no shame in that — but the strategy has to be articulated.
“They need to tell investors what they’re spending the money on and how it will ultimately make them a more efficient business,” Brian Blau, a research director with technology research and advisory group Gartner, said. “It’s OK to be spending more than you’re making now, but if it goes on for awhile it becomes a problem.”
To that end, Twitter might consider opening up its road show for investors to the wider world. These grillings by deep pocketed members of the financial community are a rite of passage for companies that want to trade publicly.
Facebook founder Mark Zuckerberg’s hoodie and disaffected youth schtick did not play well to the conservative investment crowd. There was a widely held perception the company did not do enough to assuage investor concerns it lacked a strategy for monetizing during the IPO period.
That was a mistake, and it took Facebook nearly a year to climb back to its IPO value.
There’s an opportunity for Twitter to use the same social networking tools it helped pioneer to avoid that problem, particularly now that the Securities and Exchange Commission has broadened rules to allow companies to post, blog or tweet financial disclosures. In theory, there’s no reason why Twitter couldn’t tweet or live blog its meetings with the Wall Street community, communications experts say.
“There’s a lot of information that’s shared during these meetings and it doesn’t have to all come out through SEC filings,” Jeff Corbin, chief executive at KCSA Strategic Communications and the author of “Investor Relations: The Art of Communicating Value,” told TheWrap. “There are going to be questions raised about their long-term strategy and their valuation. Let the public in on it.”
For the most part, investors and media sages commend Twitter for focusing on long-term growth over short-term profit. It’s rare for a company to inspire a widely used verb — as Twitter did with “tweet,” or Google with “Google” — and that kind of cultural hold has enormous value.
It has also become a key ally of traditional media, allowing viewers to share their thoughts on episodes or films that are of the moment.
“It feels more like a utility than Facebook or Groupon,” Mike Jones, former CEO of MySpace and the head of the technology incubator Science Inc., said. “They have solidly built a business that will be just as relevant five to ten years from now.”
Jones pointed out that Twitter has become a social media company that is the destination for finding out about breaking news events. That’s a concise elevator pitch and one that clearly has merit for advertisers, even as the social media and online advertising space becomes more crowded.
The best news for Twitter is that it has already weathered one pre-IPO challenge and emerged the stronger. The company was fiercely criticized after it announced that it had filed its public offering prospectus with the SEC confidentially, as new rules enable it to do, but that outrage dissolved as soon as its financial documents were shared with the world. Unlike other tech companies that have been maligned for artificially touching up their balance sheets, Twitter was hailed for its candor and its frank assessment of assets and deficits, opportunities and risk.
As Steven M. Davidoff, a professor at the Michael E. Moritz College of Law at Ohio State University, wrote in the New York Times, “Twitter appears to be the first big tech I.P.O. in which a company simply prepared a thorough filing without pushing the boundaries.”
Sounds like someone learned a thing or two from recent history.