Twitter’s IPO signals social media’s maturity

Forget endless tweet streams of selfies from the morning commute or details about what everyone had for breakfast. News Thursday from Twitter that it’s begun the initial public offering process is the clearest sign yet that the social media service – and the social media category as a whole – is all grown up.

In one of the most hotly anticipated tech sector financial moves this year, Twitter announced – in a tweet, of course – that it had filed an S-1 with the U.S. Securities and Exchange Commission. It’s the first major step toward becoming a publicly-traded company, and kicks off negotiations between the company and the SEC to nail down the offering’s specific terms before shares become publicly available.

With various estimates placing Twitter’s value at between US$10 billion and $14 billion, observers expect final valuation to be somewhat below those numbers. Still lofty, but a full order of magnitude below last year’s $100-billion-plus pre-Facebook-IPO hype.

Avoiding the hype

The pressure is on for Twitter’s IPO to perform at or above expectations, as Facebook’s didn’t exactly set the world on fire. After first-day computer glitches that halted trading in the highly anticipated offering, Facebook’s share price dropped from a strike price of $38 to less than half that by August amid investor concerns that the company didn’t have a viable plan for leveraging its massive audience – currently 1.15 billion users – into sustainable advertising revenue streams. Groupon, which went public in 2011, flailed out of the gate amid concerns over irregular accounting practices and cooled investor enthusiasm for social media IPOs in the absence of measurable revenue performance.

As calls for Twitter to take the IPO plunge grew, the company remained coy about its plans to go public, choosing instead to focus on building advertiser engagement – and revenues. The extra time has paid off. Research firm eMarketer says Twitter’s estimated revenues of US$288.3 million in 2012 will more than double to $582.8 million this year. Greencrest Capital chief economist Max Wolff told Reuters he expects Twitter to break even this year, and will grow 40 per cent year-over-year with revenues in the $1 billion range.

While Twitter’s numbers pale in comparison to Facebook’s ad revenues of $1.6 billion in the April-June 2013 quarter, Twitter has a key advantage: Unlike Facebook, which was initially a web-based service and remains web-centric technologically and culturally, Twitter has always been mobile-first. CEO Dick Costolo has confirmed that Twitter makes more money from its mobile platforms than it does from web-based advertising.

A high-stakes credibility play

Indeed, it was Facebook’s inability to convince investors that it had a mobile ad revenue plan that drove the stock’s early swan dive. Consecutive quarters of consistent mobile ad revenue growth since then have squelched the scepticism and pushed the share into the $45 range – an all-time high – but the lesson hasn’t been lost on Twitter’s leadership.

Twitter’s 200 million users may pale in comparison to Facebook’s numbers, but Twitter’s lighter, more agile architecture makes it a far more powerful platform for connecting, in real-time, on anything from a local to a global scale. And it’s ideally positioned to become the Internet’s next great utility.

“It's completely conquered mobile,” said Greencrest Capital’s Wolff. “It has an enormous social network. It's becoming a key utility as a second screen to TV and it's literally the first draft of history.”

While Twitter isn’t confirming timeline, past large-scale social media IPOs suggest a go-live around December or January. In taking its time to ensure the conditions were just right, Twitter is showing it’s learned from its competitors’ mistakes as it tries to leapfrog them all.

Carmi Levy is a London, Ont.-based independent technology analyst and journalist. The opinions expressed are his own. carmilevy@yahoo.ca