Providing insight from more than 32 years of financial industry experience helping you to make better financial planning and family planning decisions.
Happy Halloween! It’s almost November and the Twitter initial public offering (IPO) is almost upon us. Twitter will trade under the symbol TWTR on the New York Stock Exchange (NYSE). Many investors have been looking forward to the Twitter IPO because they believe the stock may “pop” (go up significantly) on the opening day of trading. Some people will sell and take a quick profit if the stocks really moves. Some people might want to sell but can’t because of regulatory restrictions on their stock. Most people will buy the stock at the inflated price on opening day and hold on to it. Of course this all assumes that TWTR is priced correctly and trades far higher than its initial offering price. We all know you can’t assume anything with IPOs or with stocks in general.
The New York Stock Exchange has been preparing and testing their systems to avoid another fiasco like the one with the Facebook (FB) IPO in May 2012. Maybe Twitter management chose the NYSE over the NASDAQ market because of the fear of having similar problems. We’ll soon know how smoothly the IPO process goes for Twitter as well as the NYSE and we’ll know how accurately the shares of TWTR were priced. Twitter seems to have good IPO buzz because it is a micro blogging site where users can posts short messages (140 characters) about any subject they like and share it instantly with the world. The world is abuzz about Twitter and its new shiny stock.
Should we really be this interested in a Twitter IPO? Can TWTR live up to the hype? Will TWTR continue to do well after the initial day of trading or will it fall to a normal trading level and just stay there? No one really knows. I’m not so sure Twitter should be a stand-alone company, never mind going public. Yes more than 200 million people use Twitter on a regular basis and I am one of them (@PJSacchetta). There is no charge to register for a Twitter account and there is no charge to use the service. As far as I know they are not planning to charge users any fees. They plan to make money from sponsored tweets; a tweet is what they call a 140-character message that users post on Twitter. Sponsored tweets are just another way of saying paid tweets or just plain ole advertising.
Most people have liked Twitter from the start because they could rely on real people tweeting real information in real time without any funnel or editing. Breaking news has been posted on Twitter before any other media source. All kinds of important information has been posted on Twitter and then re-tweeted or shared through many other media outlets and sites. You can tweet from a computer, tablet or mobile phone. It’s quick, easy and convenient for most people. This is why I think that monetizing Twitter may not work well enough to justify a stand-alone public company. Will many people get turned off by seeing more advertisements? Will Twitter become just another site with tons of ads?
Sometimes we need to assess the facts as they are and not as we would like them to be or become. I’m sure the founders, management and early investors (venture capital) want to become super rich with their publicly traded stock or cash out. This is the American way. They have every right to list their IPO and take their chances. The question remains “is this the best course of action for the company”? Based on the mass of users who pay nothing to use the service and expect unfiltered tweets to be posted instantly, is there really a business model that can sustain long-term independent success?
Is this IPO just a way for the Twitter founders and investors to cash out quickly while retaining the ability to be bought out at some point later? A company like Google (GOOG) would be a great home for Twitter. Google already knows and understands how to monetize web sites and services. I’m sure I’m not the first person to think or suggest Google buy Twitter. I just believe that being publically traded is not the ultimate sign of success. There are many very successful companies that are privately held which have huge revenues and profits but that choose to stay private. In the case of Twitter I just don’t see how the site can be monetized in a way that would keep the original site design in place. We’ll find out soon enough. As always, on Monday morning all the quarterbacks will tell you exactly how the game should have been played the day before! Trick or Treat?