Twitter’s IPO: proof of concept
Twitter’s announcement yesterday that it is to launch the company on the stock markets is a good excuse to discuss just what kind of company it is. A message made up of 135 characters from its corporate account was a powerful and simple way of getting the entire planet to use its services within seconds.
What’s important here isn’t whether the company is making money or not: what we need to be talking about is the extent to which Twitter has become the planet’s information heartbeat. From a strictly financial perspective, an IPO by a company with less than a billion dollars turnover normally wouldn’t make the headlines. The company turned over more than 100 million dollars in the last quarter of last year, demonstrating its profitability. That said, the concept of profitability when applied to Twitter has always been subject to myriad factors due to the multiple acquisitions —more than 20 in the last year— that the company has carried out to consolidate its activities in the advertising and analysis businesses.
What we need to understand here is that Twitter has shown that its shareholders have no problem with this business model: “look at my possibilities, I am going to keep working on them, because what I am building has huge value.” Now the company believes that the moment has arrived to offer some of these possibilities to a wider group of investors, which means going public and completely changing the dimensions of the company, with all that implies: good and, undoubtedly, bad.
The good side to the move is that the expected huge capital inflows will allow Twitter to carry out a strategy that, although it hasn’t exactly been short of money until now, will allow it to press ahead with higher risk strategies knowing that it will have sound financial backing. The bad side is that the markets will be putting the company under tremendous pressure to perform, which can often become a curse, particularly in the case of a company characterized by its steady, measured, growth.
Twitter has chosen a strategic moment to go public. The markets are increasingly bullish, while shares in Facebook —a company that has provided a lesson in how not to launch an IPO— and that fell precipitously shortly after going on sale, are now almost back at their original price. The markets seem to accept and understand that the activities of companies like Facebook, LinkedIn, or Twitter are part of the overall economy, and largely able to survive superficial or temporary setbacks.
This being the case, Twitter must now show that it is able to take advantage on a systematic and sustainable basis from the activities that take place on its media, and that have not traditionally been a source of income. Recent acquisitions such as MoPub will contribute toward converting these activities into a sound business model: most revenue until now has largely come from its advertising activities, but I believe the company will evolve into something more ambitious that will to some degree include premium services and repeat business with certain types of customers.
My impression is that Twitter is showing itself able to build an ecosystem that will be essential for anybody or any organization that wants to get their information out there quickly and efficiently, and that this, along with an appropriate analysis and advertising business, is something that a lot of people want to pay for. Twitter already has many of the pieces required to do this; all it has to do now is work to integrate them, and of course tell the world about it, something that it has shown itself sublimely able to do.
Cognizant of the company and its way of working, I see no reason why we won’t soon be seeing signs that suggest this in the run up to the launch. One thing is clear: there will be huge interest in Twitter shares as well as considerable attention paid to the company’s development; things would have to go very badly wrong for the IPO to be a failure, which at this stage in the game is far more than mere gainsaying.
