The Twitter IPO has kept the buzz loud on the social media platform for some time now. While everyone was talking about how differently Twitter can launch an IPO and how the company has grown by leaps and bounds in a short span, the run up to the IPO was a frenzy for investors and market watchers. Now that the Twitter IPO has “happened”, here is a look at its nitty gritty and the road ahead….
Surpassing all expectations
In its first day as a publicly traded company, Twitter, which started out with the expectation to raise at least €1.8bn on the New York Stock Exchange did very well for itself and its major stakeholders. The seven-year-old social network saw its stock price soar from an initial public offering price of $26 to $44.90, a 73 percent increase.
After one day of trading Twitter already has a greater valuation than currently hot tech companies like Netflix and LinkedIn which is a feat in itself. The company pocketed $1.8 billion when it priced its IPO at $26 Wednesday night; this also means it could have kept its price higher. However, the strong first-day increase makes Twitter’s one of the most successful IPOs of the year. According to Renaissance Capital, an investment firm that manages IPO funds, out of 193 public offerings so far in 2013, Twitter’s day-one jump was the 14th largest.
Powered by intense early demand, Twitter stock began trading at $45.10, a huge jump from the IPO pricing. When the stock was officially available to the public at about 10:50 a.m., traders pushed the price to $50 in the first ten minutes, but it quickly receded and hovered between $45 and $46 for most the day. Something that really stands out now is the difference between the Twitter IPO and that of Facebook.
Why the Twitter IPO didn’t turn out to be like the Facebook IPO
- Mark Zuckerberg rung in the Facebook IPO on Nasdaq at a ceremony in Menlo Park, Calif. However Twitter chose to break away from the long tradition and instead chose the New York Stock Exchange.
- Shares of Twitter started trading on Thursday morning without any glitches. In Facebook’s case, an issue with Nasdaq’s computer programming delayed trading for some 30 minutes and caused confusion among traders.
- Twitter’s stock has not required massive support from its bankers to trade above its IPO price and it closed well above it on the first day of trading. Conversely, in May 2012, Morgan Stanley MS -1.41% had to feverishly buy Facebook stock to keep it above $38.
- Facebook increased the size of its IPO in the days leading up to it and raised $16 billion but Twitter only increased the price of the IPO as demand rose, it did not upsize it.
- Twitter will keep all the money raised in its IPO and use it for general corporate purposes, capital expenditures, or save it for future needs. However, more than half the money raised in Facebook’s IPO went into the pockets of early shareholders of the company, like venture capitalists and hedge funds.
- Goldman Sachs, the lead underwriter for the Twitter IPO worked to keep a large chunk of the offering out of the hands of retail investors and hedge funds that like to short stocks, opting instead for big long-only funds. Another deviation from the big Silicon Valley IPOs, including Facebook’s IPO, which for years were led by Morgan Stanley.
- Facebook was earning money, $1 billion in the calendar year prior to the IPO. But Twitter lost $133.9 million in the first nine months of 2013. By opting to go public at an earlier stage in its growth curve, it might be easier for Twitter to meet high investor expectations provided it doesn’t cause them to lose faith in its story.
- When it went public, Facebook had 900 million users. With some 230 million active users, Twitter has about one-fifth of the user base of Facebook today.
- Facebook had more than 1 billion shares coming off of lock-up restrictions within a year of its IPO. The number of shares Twitter will have coming off of lock-up restrictions in the next year will be much more modest.
- Shares of Twitter opened at $45.10 and were up by about 75% in morning trading from its IPO price.
How will Twitter survive competition?
Twitter operates in a highly-competitive industry and notwithstanding the success of its IPO, will still have to work hard to justify the valuation that investors have given it. Investors seem to be betting on Twitter’s ability to turn its massive network of users into cash returns.
The management and its ability to maneuver a business model which is still so fluid is what sets Twitter part from the investor perspective. Shortly before announcing its IPO plans, Twitter acquired MoPub, a mobile publishing platform in a bid to keep pace with the rapid shift from desktop computers to mobiles.
From then on, it has been pitching itself as the “soundtrack to television”, selling Twitter ads linked to conversations about television programmes to companies that buy advertisements next to those shows.
While Twitter is an attractive medium for advertisers, the website has been battling fears that it could fall out of favour if its advertisements became too annoying, invasive or monotonous, if people’s privacy was breached, or if users flood the site with too many pointless tweets.
Growth could slow down if there is a decrease in the perceived quality of the content generated by our users. Thursday’s trading may be the end of a testing route to market, but it is likely to mark the start of an even more gruelling road ahead, one of the survival of the fittest.
The Future of Advertising on Twitter
Advertising is bound to be a big part of its plans for the future; Twitter recently announced that more than 70% of its advertising revenues are coming from mobile ad buys. Twitter’s advertising products team has given the world a glimpse into how the company’s future business plans could include real-time bidding, the process by which publishers sell ad slots to marketers via the sort of automatic trading done on Wall Street.
With more and more consumers shifting to mobile, Twitter’s ads especially mobile must be self-service something that small businesses can do themselves. Ads should be more targeted while providing better data to advertisers in terms of analytics.
While there’s a lot of talk today about how Twitter will need to dial up its advertising revenues as a public company, there are a couple places the company says that won’t happen: its Vine and #Music apps. Veering its focus on “in-app conversions” is – perhaps – indicative of the company’s desire to induce mobile users to purchase products they’ve seen advertised on Twitter directly from within the Twitter app, or from inside other apps served by Twitter’s MoPub mobile ad exchange.
The company must figure out how it can make its advertising products – the promoted tweet, trend, and account – available to be traded via real-time bidding. Currently, Twitter’s advertisers can target users based on their interests, location, and peer groups, but the ads Twitter sells do not allow the targeting of individual users in real time like Facebook does.
Twitter’s $350 million purchase of the mobile advertising tech company MoPub is widely thought to have been made with the hopes of creating a real-time bidding platform for mobile, one that would allow marketers to automatically purchase ads using Twitter’s data that would appear on mobile devices outside the Twitter platform.
Facebook’s FBX platform allows something similar, but the ads appear inside Facebook. In order to get RTB ads inside Twitter, the company will need to create a programmatically traded advertising unit that seamlessly fits into the user experience the way a so-called “native advertisement” does.
At present, all of Twitter’s advertising products are native ads, but none are traded programmatically. Twitter is likely to come up with a desktop website and mobile app that will show embedded videos and photos on the main timeline, without users first having to click a link for them to appear.
This means that moving forward, the photos and videos advertisers embed in promoted tweets can be viewed by everyone who sees the tweet, and the media will flow seamlessly between photos and videos tweeted by other users. By making those photo slots open to advertisers via real-time bidding, Twitter might find a way to make clicking on some of these branded photos initiate a purchase.
Beyond Advertising- Partnerships
Twitter is entering a space dominated by Amazon.com Inc. (AMZN) and EBay Inc. (EBAY) as it taps in to new sources of revenue to reach its sales target of $1 billion in 2014. In its first foray into e-commerce, projected by Forrester Research Inc. (FORR) to be a $370 billion market in the U.S. by 2017, Twitter plans to offer retailers tools for selling goods and services inside tweets.
This makes a lot of sense for Twitter, since a lot of online advertising is commerce related, and as a platform, they should be able to integrate more closely with online retailers. The idea essentially is to team up with merchants and providers of payment services rather than compete with those companies, and may take a percentage of any transactions on its site.
A partnership with television and news channels is another area they are exploring. In Twitter’s corner, they have the Amplify program, where broadcasters can embed short video clips in their tweets in near-real time. Twitter Amplify’s partnerships include Fox, BBC America, Conde Nast and Discovery Channel.
Twitter further updated its Amplify partnerships early October 2013, when Viacom International Media Networks (VIMN) announced its partnership will kick off with the “2013 MTV EMA” on November 10th. MTV will highlight the show’s most buzz worthy performance, in order to interact with its Twitter followers across more than 170 countries.
Late last month, just a few days shy of its IPO, Twitter signed up another major TV partner in BBC Global News, which in addition to selling ads in video news clips posted to the service is coming up with a show about social media trends that will be distributed through Twitter.
BBC.com has started production of a short-form daily broadcast program, “#BBCTrending,” about trending topics on social media. The series, to launch later this fall, will be hosted by BBC journalist Anne-Marie Tomchak (@AMTomchak) who will work with production units across the BBC. Twitter’s other TV partnerships include deals with CBS, the NFL, ESPN, Turner Sports and the NBA, Viacom, Fox Broadcasting, The Weather Channel and A+E Networks.