Nearly a year and a half after Facebook's IPO debacle, Twitter has filed for its own public offering with the hope of raising $1 billion. Financial communications experts say they believe Twitter will avoid many of Facebook's missteps.
One major advantage Twitter has is that it was able to keep its specific IPO plans and financials under wraps due to the JOBS Act, which allows any company with annual revenue under $1 billion to file confidentially. Although Twitter actually filed its initial paperwork to go public in July, it tweeted on September 12 that it “confidentially submitted an S-1 to the SEC for a planned IPO.”
However, the cat is now out of the bag on Twitter's financial information, and the public can access data about its revenue stream, official user numbers, risk factors, share costs, and goals via the S-1 form.
Prior to the JOBS Act, the S-1 was traditionally accessible to the public for a much longer period of time, allowing for a greater level of familiarity with company operations. Although Twitter is well-known, this could be a potential pitfall for the company because it gives the public less time to get familiar with its strategy.
“Because Twitter has remained private, it didn't have to disclose a lot of background information. So when their information goes public, it makes it even more imperative upon them to make sure that everything – particularly the prospectus document everyone relies on to understand the company's background and goals -- is very clear and their messaging is very succinct,” says Brian Schaffer, head of transaction services at Prosek Partners.
|Facebook's Mark Zuckerberg|
After Facebook went public, Morgan Stanley blamed CNBC for overhyping the stock, creating a situation where it was futile for the company to live up to expectations. But with the opportunity to file confidentially, Twitter largely avoided the harsh media spotlight, something Andy Lutzky, director in the strategic communications practice of FTI Consulting, compares to the Eye of Sauron from The Lord of the Rings.
“When a company files, Wall Street and the entire world suddenly directs this huge, intense focus on it, and a lot of times that can be daunting,” he says. “The alternative to filing confidentially is that the lights are already on, you're at Yankee Stadium, it is the first pitch, and you have to make it or break it.”
Companies must contend with many outside, uncontrollable forces during the IPO process. Corporations cannot control what is going on in the broader market, but they can determine messaging, operations, and current growth prospects.
For example, a glitch with the NASDAQ stock exchange on the day of Facebook's IPO delayed trading. Because of this, Twitter has to deal with rumors that it will list on the New York Stock Exchange instead. But a snafu could take place on any exchange at any time.
“The biggest thing that derails IPOs is broader markets,” says Schaffer. “It doesn't matter what sector you are in, the size of the IPO, or how excited people are about it; if broader markets aren't doing well, nobody prices.”
Predicaments like the ongoing government shutdown may not necessarily affect the way stocks are traded, but if a plethora of negative outside events overshadow the market – such as increasing interest rates – it is trickier for an IPO to succeed.
Something a company can control, however, is timing. Financials can get stale and interest potentially wanes outside of certain timeslots. For example, after Thanksgiving, consumers start to take vacations and portfolio managers don't want to invest anymore, so it can be difficult to get an IPO priced, says Schaffer.
Additionally, experts say it does not hurt to have a CEO and IR executive team up on capital markets and how they operate. Any company looking into an IPO should not put all of its eggs in one basket – in this case, relying completely on investment bankers.
“Life changes for you the moment you go public,” says Lisa Rose, senior MD at Dix & Eaton. “Investment bankers are there to get you through the process, but once you are a public company, their job with respect to taking you public is done. Then it is up to the company and investor relations team to do a good job managing expectations with the investment community.”
Another major roadblock for Facebook was initially coming together and understanding what the price range would be for its IPO. The bankers and CFO reportedly argued for a higher valuation that what Wall Street wanted, so when Facebook went public with a higher price tag, demand wasn't as strong.
“To avoid this, Twitter must clearly define what the long-term investment rationale for the company is,” says Schaffer. “If they come out with some silly expectation for the range, there is going to be trouble again.”
Twitter was reportedly valued at between $15 billion and $16 billion, meaning the company's IPO price is estimated to be in the range of $28 to $30 per share.
The JOBS Act creates an attractive opportunity for smaller companies that have not considered going public before, and comms experts say tech companies such as Twitter will be at the forefront of this new process.
“While there may not be a roadmap of how this process is supposed to play out, that should not be a dissuading factor,” says Lutzky. “This is put in place to give companies the confidence and ability to take on this process, and it is an exciting time. Someone has to be first.”