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Saturday, September 14, 2013

The next big IPO : Twitter

Twitter well-placed to exploit the future

The news of the initial public offering of Twitter Inc. is unsurprisingly doing well on the micro-blogger's platform. It is the most hotly anticipated IPO since that of its predecessor as the hot social networking platform, Facebook, in May 2012. As it stands, the announcement appears to be a clever trial balloon. It enables the pioneering micro-blogging company to test the waters for valuations, without any obligation to actually undertake an IPO in a given timeframe. What Twitter did was to use the "jumpstart our business startups" or JOBS option to file an S-1 declaration to the US Securities and Exchange Commission. The S-1 merely signifies an intention to make an IPO sometime. The financials declared may be kept confidential until 21 days before the first IPO road show. In fact, Twitter was under no obligation to even declare it had filed an S-1. All that's known for sure is that Goldman Sachs is the lead underwriter, and that annual revenues are under $1 billion, since that is the cut-off for S-1 eligibility. Market estimates are that revenues are about $500-600 million. Previous venture capital offerings suggest Twitter is valued at around $11-14 billion; but it reportedly refused a 100 per cent buyout offer for $14 billion earlier this year. Silicon Valley believes that Twitter's revenues more than doubled in the last year and revenues could treble again by 2015. Its CEO, Dick Costolo, claims that Twitter makes more from mobile micro-applications, than from web advertising. This is interesting since mobile is the growth platform of the future, and Twitter appears well-placed to exploit it.

Comparisons with Facebook are inevitable. Twitter has just 200 million accounts compared to Facebook's billion-plus. And Facebook's market value at $110 billion is also many multiples more than that of Twitter. However, Twitter users match Facebook users in terms of sheer volume. People tend to tweet far more often than they update Facebook. The social media search engine, Topsy, has indexed over 425 billion tweets since 2010. The service has evolved from the simple text messages it offered when launched back in 2007. Twitter delivers multimedia content, embedded links and micro-applications. It is the latter that are reportedly generating the major mobile revenue. The platform-agnostic nature of 140-character tweets is of major importance. It means Twitter is similar in looks and functionality on mobile and the big screen, and no more difficult to use than a short messaging service or SMS. Facebook, in contrast, has struggled to generate revenues on mobile, where it offers an attenuated experience compared to the big screen. As more people go mobile, it is difficult not to imagine that the future belongs to Twitter.

The immediacy of Twitter contact and the ability to reach total strangers are revolutionary. The hashtag (#) delineating content has proved so popular that other social media companies are trying to emulate it. Twitter also triggered new paradigms in terms of political, bureaucratic and corporate brand-building and feedback since it removed the layers insulating billionaire CEOs, political leaders and bureaucrats from the common man. It has also forced media to accelerate the delivery of breaking news. Everything from the raid that killed Osama bin Laden to the Boston bombings to Tahrir Square, sundry natural disasters and communal riots hits Twitter within minutes. Adoption is growing - fastest, it appears, in the 55-64 age group - the age-cohort with the most money. Monetising any web-based service has always been a headache. Twitter seems to have put together a working business model with its combination of advertising, direct marketing reach and its micro-applications. The IPO strategy, timing, pricing and structuring will presumably depend on the feedback it gets from the S-1 announcement. Well-handled, the IPO could be more successful than Facebook's, which has so far, struggled to justify its IPO valuations.

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