Should You Hold Your Breath for the Twitter IPO?


Earlier today, Semil Shah wrote a terrific post on TechCrunch about Twitter’s inexorable march toward an IPO.  I’ve summarized Semil’s points here:

  • The drumbeat for Twitter’s IPO has begun and will continue to get louder and more frequent (see here for proof)
  • Now that Facebook has returned to IPO price and is back in favor, the market will be much more receptive to Twitter
  • That said, Twitter should price its IPO lower than Facebook, giving investors a chance to make money and employees the morale boost from a rising stock price, rather than the tumult Facebook inflicted on investors and employees
  • Twitter still has lots of work to do to improve – ie, mobile integration, DM functionality, etc
  • But, Twitter is undeniably a powerful tool for an increasing number of people
  • Despite the likely growing momentum for its IPO, Twitter should emulate LinkedIn, tempering expectations, rather than follow in Facebook’s footsteps

I couldn’t agree with Semil more.  My generic advice for companies heading for an IPO, as enumerated here, is to build in plenty of potential upside by tamping down expectations for future financial performance and to price IPOs at least 20-30% below the market clearing price, thus attracting the highest quality, longest term, institutional shareholders and signaling the desire to retain these shareholders for a long time to come.

Twitter is a great service that, like Semil, I personally derive great value from (far more value than I derive from Facebook, for example).  While delivering a well executed IPO is a major goal for most companies, for consumer services such as Facebook, Twitter and LinkedIn, the imperative is even higher. As we’ve learned with Facebook, a poorly executed IPO can actually negatively impact consumer sentiment toward the service and thus ultimately drag down financial performance.  Facebook has been able to overcome this tumult, but Twitter, if the company executes a better IPO and public market plan, will hopefully never have to face a similar challenge.

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