Twitter vs. Facebook IPO: How the Micro-Blog Dressed Up to Win Over Wall Street

Twitter vs. Facebook IPO: How the Micro-Blog Dressed Up to Win Over Wall Street

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Lowered expectations and a conservative approach paid off — and the suits and ties didn't hurt

Twitter's initial public offering succeeded where Facebook's failed. There was nary a hoodie in sight, as this Silicon Valley pioneer showed it could squeeze its rebel spirit into a Wall Street power suit.

“The debacle that was the Facebook IPO showed Twitter what not to do,” Brian Solis, a digital analyst at the research and advisory firm Altimeter Group, said. “Twitter approached the market more conservatively. They did a great job of surpassing expectations and they did so by setting the bar lower.”

On its first day of trading, Twitter's shares – initially priced at $26 – opened up 73 percent, to $45.10, and closed at $44.90. Opening day was smooth sailing for the company, with no glitches, high investor demand, and a relatively stable stock price after the initial jump.

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By contrast, Facebook shares were priced much higher at $38, and opened up 11 percent at $42.05 on May 18, 2012. But the social network stumbled out of the gate when NASDAQ was forced to delay trading. Shares closed the day at $38.37, followed by a sharp decline over the next several months to well below its opening price, pushing the stock to $17.55 at its lowest.

Where Twitter took the traditional path, Facebook tried to show off its innovative spirit – which may have turned off investors.

“I think Twitter approached their entire IPO process in a different way,” Brian Blau, a research director in consumer technology at Gartner, told TheWrap. “They were a bit more conservative or reserved in their approach … they didn't make any bold moves. There were no surprises.”

Also read: How Twitter Can Avoid Facebook’s IPO Nightmare

“I think that they said to themselves, ‘Listen: we run a solid business here, we don't need to upset the apple cart. We just need to get through the process,'” Blau added.

Facebook, on the other hand, wanted to be innovative and seemed to revel in doing things its own way.

“It was there all the way from the start,” Blau said: the S-1 with Zuckerberg's “hacker way” paragraphs, multiple updates to the S-1 that “spooked” investors, the roadshow that Zuckerberg didn't always show up to and wore his trademark hoodie instead of a suit and tie throughout.

“Those things aren't necessarily bad in themselves, but you add all these things up … it just wasn't smooth,” Blau said.

NASDAQ didn't help matters with its technical glitches the day Facebook went public, which led to a half-hour delay in trading, multi-million dollar class action lawsuits from investors against Facebook and NASDAQ and a $10 million fine against NASDAQ from the Securities and Exchange Commission.

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Twitter elected to list on the New York Stock Exchange instead, which reportedly did run-throughs to ensure it would be able to meet the demand.

“We are being very methodical in our planning for Twitter's IPO, and are working together with the industry to ensure a world-class experience for Twitter, retail investors and all market participants,” an NYSE spokesman told Reuters.

A year and a half later, Facebook's stock has rebounded from its stumble out of the gate, buoyed by strong earnings reports. If Twitter wants to maintain its performance, it will have to do the same.

Also read:Twitter Sets IPO Stock Price: $26 Per Share, for $18B Company Valuation

The company has done an impressive job of building up its revenue, but it hit the open market while still operating in the red. While its revenues nearly tripled to $317 million in 2012 and more than 215 million people use the service each month, Twitter still lost $79 million last year. Now that it faces quarterly earnings reports it can expect grillings from investors who would like to see it push those numbers into the black — perhaps at a faster pace than the company is willing and able to achieve.

Just as it learned from Facebook's mistakes, Twitter can also profit from its triumphs.

“Now that Twitter has a significant number of shareholders, one of its greatest challenges will be to protect its user experience against shareholder expectations,” Solis said. “These are discerning consumers and you need to keep them interested and active in the face of an ever shifting social media landscape. They need to put their users first and foremost ahead of monetization.”