To keep it brief: Twitter files for IPO
SAN FRANCISCO — Twitter made the surprise announcement that it planned to sell stock to the public as only Twitter could: in less than 140 characters.
It revealed Thursday that it had filed the initial paperwork for a public offering in a tweet. A second tweet said simply, “Now back to work,” and showed a picture of Twitter’s San Francisco offices.
Those were the only public comments from the 7-year-old company about to mount the most hotly anticipated IPO since Facebook Inc. It marked the first step in a calculated effort to make its public debut more “low key” than Facebook’s, which was botched by runaway hype and pent-up demand for a social media IPO.
Equally unconventional was the manner in which Twitter submitted its paperwork. Potential investors will not get a glimpse of the company’s finances — at least not right away.
Twitter filed its preliminary prospectus with the Securities and Exchange Commission, known as an S-1, confidentially.
That means it does not have to release detailed financial information — including its revenue and income — until three weeks before it embarks on its “road show” for investors.
The stealth filing was made possible by a law signed by President Obama last year, the Jumpstart Our Business Startups, or JOBS Act, that enables companies with less than $1 billion in revenue to file confidential IPOs.
Analysts say these “secret IPOs” are a game changer for young technology companies like Twitter, giving them a chance to go public with less paperwork and fewer financial disclosures to the media and competitors.
But the confidential filing also makes it far tougher for analysts and investors to get a sense of how many shares Twitter would sell or how the shares would be priced.
How much money the company makes is a closely guarded secret. Research firm EMarketer estimates that Twitter will generate $583 million in advertising sales this year. It’s not forecast to cross the $1-billion threshold until 2015, when EMarketer expects Twitter to rake in $1.3 billion in ad revenue.
According to reports, the company became profitable in December and is on track to generate $650 million in revenue this year.
That’s a far cry from Google Inc. and Facebook, its chief rivals competing for the attention of the world’s biggest advertisers.
Twitter is rewriting the playbook of technology IPOs, said Max Wolff, chief economist and senior equity analyst at Greencrest Capital Management in New York.
A Twitter IPO could provide a huge boost to Wall Street investment banks — particularly lead underwriter Goldman Sachs — searching for a hot stock to excite investors. The prize: huge fees and bragging rights. Twitter was valued in its last funding round around at about $10 billion, and its public debut could trigger a boom in tech IPOs.
“If Twitter has a successful run — and I think there’s every reason to expect this to be successful in a way that Facebook wasn’t — you can expect a deluge,” Wolff said.
Twitter met with investment banks in recent weeks to capitalize on what analysts said was a golden moment for social media on Wall Street.
Facebook shares this week hit an all-time high, climbing above the $45 mark, the price that its shares reached on its first day of trading in May 2012. Investors have also pushed up the value of professional social networking service LinkedIn.
A successful IPO by one of the Internet’s best-known brands could power the stock market higher, analysts said.
“Internet stocks are valued at crazy levels right now, so the timing is perfect,” Wedbush Securities analyst Michael Pachter said.
California officials are also counting on the IPO to help pad the state’s coffers. Technology IPOs have already added hundreds of millions of dollars from capital gains taxes.
“Everyone in the tech world is trying to be the next Twitter, so if Twitter is successful, then you’re going to see a lot of folks bandwagon this way of going public,” Wolff said. “If this is as successful as there is every reason to expect it to be, there’s going to be a lot of me-toos, a lot of follow-ons.”
Twitter is hoping to go public by the end of the year, but the actual offering may not take place until early 2014.
With more than 200 million users — and by some accounts it is now approaching 300 million — Twitter is one of the most popular online hangouts. And, counting in its favor, more than half of Twitter’s revenue already comes from mobile advertising, eliminating one of the main concerns investors had about Facebook at the time of that social network’s IPO.
Alarm over Facebook’s ability to sell ads on mobile devices drove down shares after the company’s $16-billion IPO in May 2012, the largest technology offering on record.
Twitter is already trading at a premium — placing the value of the company between $15 billion and $16 billion — on the private markets, Pachter said. The key will be for Twitter not to flood the market with shares the way Facebook did.
Twitter has undergone a dramatic transformation under the leadership of Dick Costolo, a former Google executive. He took over the company as chief executive in October 2010, when it was known more for its 140-character messages and its quirky corporate culture than as a viable business.
The company had been whipped by management shuffles and inner turmoil. The service was so prone to outages that it had its own mascot: the “fail whale.”
And yet the company still managed to grow in popularity around the world — and began to gain traction with advertisers.
Costolo poached seasoned executives from rivals. He made the service friendlier to new users and helped popularize a whole new lexicon, including the hashtag (#) and the @ symbol handle.
He further pushed the service into promising and potentially lucrative new areas such as television. And he rolled out ambitious new advertising products.
Perhaps most important in his effort to keep his company’s IPO from becoming a public debacle: Costolo kept a nearly airtight lid on trading by employees and insiders on private markets.
As a result, analysts expect Twitter to avoid some of the problems that Facebook and Groupon faced when they went public.
Also, Twitter is going public at a particularly fortuitous moment, said Josef Schuster of IPO research and investment house IPOX Schuster in Chicago.
“The stock market is doing remarkably well, the economy is good, plenty of capital is available. The stock market is trading at an all-time high,” he said. “It’s been a very good year for IPO investors.”
andrea.chang@latimes.com
Guynn reported from San Francisco and Chang from Los Angeles.
