Should you buy Twitter shares when the prospectus lands?
It's a shame investors are being kept in the dark after the hammering they took from the Facebook IPO
WHEN news of the most eagerly anticipated tech flotation since Facebook finally came, "it was delivered appropriately in the form of a tweet", said Schumpeter in The Economist. Given the complete absence of any further information, no more than 140-characters were actually needed.
Twitter has taken advantage of a new US stock market rule allowing companies with less than $1bn in revenues to file for an IPO confidentially. Key details, like the state of the business and its future prospects, are being kept under wraps until shortly before it debuts.
The company is desperate to avoid a repeat of Facebook's over-hyped flotation bungle, said Richard Waters and April Dembosky in the Financial Times. Given the likely hullabaloo during the black-out, some might say it's going about it in a strange way.
The point of the new Jumpstart our Business Startups Act, dubbed the Jobs Act, is to reduce pressure on young companies – and encourage more - to explore a listing. However, reducing the amount of time between public disclosure and share sale "may weaken scrutiny".
The new rules hinder "the press and analysts really digging into the company and its financials", says Wall Street lawyer Anthony McCusker of Goodwin Procter. Given the hammering investors have taken from past social media IPOs (Facebook and Groupon to name two), is it really in their interests to make disclosure even vaguer?
In the eyes of its 200 million users, the microblogging site – founded by Jack Dorsey, Biz Stone and Evan Williams in 2006 – is "a creation of beauty", said Nils Pratley in The Guardian - a free "mishmash of news, punditry, gossip, gags, outrage and much more". It could be worth $10bn. Or maybe $15bn, who's to say? Perhaps it will all become clear when the prospectus finally lands.
But $10bn-plus for a company that will probably only break even this year "sounds pricey, even by the tech sector's jam-tomorrow standards". The key question remains: how will Twitter make money? "If thinly disguised adverts were to proliferate, users would surely revolt."
Actually, on that score, Twitter can happily point to the example of Facebook, whose fortunes (and share-price) have improved notably, without obviously alienating users, because of a surge in mobile advertising, said Citywire. Analysts like Ben Rogoff of Polar Capital also reckon that Twitter has huge value as a trend machine. As he points out, "Twitter has an information advantage because it is the first to see most news" and has algorithms to exploit that data.
Yet Twitter isn't just any old social media site and going public could induce "an existential crisis", said Elias Groll on ForeignPolicy.com. In establishing itself as "the activist's weapon of choice", it has built a reputation for fiercely protecting user data and standing up for free speech. "Is that an ethos that can be squared with Wall Street's relentless emphasis on profits?" To tap into the vast and lucrative Chinese market, for instance, would involve "rampant self-censorship".
"The conundrum facing Twitter is one that's faced every iconoclastic upstart." Should it take the money and run, or remain true to its principles? "We'll know its answer soon enough." ·