One of the hottest topics in financial news right now is the recent announcement of Twitter’s plans to go public. They have filed an S-1 Form with the Securities & Exchange Commission (SEC), marking the beginning of the IPO process for the popular site. Dick Costolo, current CEO of Twitter, Inc., released a statement in the form of a tweet (fittingly) via the company’s own account (@twitter). Arguably one of the most anticipated public offerings since Facebook, the Twitter IPO is also significant in its own right. It is one of the first big companies to utilize an act passed last year known as the JOBS (Jumpstart Our Business Startups) Act, which allows firms with annual revenues below $1bn to file confidentially, meaning that underwriters/investors will remain in the dark as they (Twitter execs) confer with the SEC about the terms of the IPO. While many economists think this will cause investors to lose confidence in the company’s performance when it hits the stock market, others think it is actually advantageous. Because of the extra time between filing and when the IPO price is announced, Twitter is in a position to better estimate their true value to the market as a whole, a luxury Facebook didn’t have when they filed for their IPO in March of last year. The transparency of their process caused a gross overvaluation of the company, leading to its highly disappointing opening day performance (closing just barely above their offering price).
Since Twitter’s initial announcement on Sept. 12, the hype has continued to grow, but because of the confidentiality of the initial process, investment bankers and their clients remain unable to speculate any actual numbers, thus preventing them from attempting to outbid each other. Additionally, they can use the extra time they have to get a sense of investor confidence in their company. Confidentiality has its drawbacks as well, though. Investor confidence in the company may actually diminish due to the secrecy of the process, in turn decreasing its true value within the stock market. Also, since the JOBS Act places a rate cap on the firms permitted to file confidentially, stockbrokers may be able to better estimate (as well as running the risk of even underestimating) the overall value of a particular company and, in turn, its stock price, before the actual one announced.
Although it has only been two weeks since Twitter’s “official” tweet publicizing the beginning of their IPO process, many significant decisions have already been made. On Sept. 14, Goldman-Sachs was revealed to be the company’s lead underwriter over Morgan-Stanley. Ten days later on Sept. 24, it is reported that they will list on the New York Stock Exchange (NYSE) as opposed to NASDAQ (the index on which most tech companies are listed). Many speculate that these decisions are directly related to Facebook’s market performance since it went public last year, but many of those rumors remain unfounded. As developments continue to unfold, so does the anticipation of brokers, investors, and stock traders to find out not onlyhow the IPO will impact their own investments, but also its implications on the climate of the stock market as a whole. It is clear that the rapidly evolving tech industry and the volatility of the post-recession economy demands change, and Twitter is in a unique position to lead the way as they continue to develop innovative, albeit unorthodox strategies in order to become a leading contender in the highly competitive post-recession economy as it enters the public stock market.
By: Manpreet Khural & Carlo San Gabriel
Sources:
http://money.cnn.com/2013/09/23/investing/ipos-2013/
http://www.cnbc.com/id/101057748
http://www.businessinsider.com/twitters-revenues-prior-to-its-ipo-201
http://www.businessinsider.com/newmission-twitter-2011-13-9
http://bmimatters.com/2012/02/18/understanding-twitter-business-model-design/
http://www.economist.com/blogs/schumpeter/2013/09/twitter-s-ipo
http://www.ft.com/intl/cms/s/0/8aa55fc0-1bf0-11e3-b678-00144feab7de.html?siteedition=intl#axzz2etv5JmaL
http://online.wsj.com/article/SB10001424127887324755104579073562166634226?mg=reno64-wsj.html?dsk=y
http://www.forbes.com/sites/nathanvardi/2013/09/13/why-twitters-ipo-wont-be-like-facebooks-ipo/
