Twitter takes first step toward going public

SAN FRANCISCO/NEW YORK Thu Sep 12, 2013 7:54pm EDT

1 of 2. A tweet from Twitter Inc. announcing its initial public offering is shown in this photo illustration in Toronto, September 12, 2013.

Credit: Reuters/Hyungwon Kang

SAN FRANCISCO/NEW YORK (Reuters) - Twitter Inc has filed for an initial public offering with U.S. regulators, the company said on Thursday, taking the first step toward what would be Silicon Valley's most anticipated debut since Facebook Inc's last year.

The impending IPO of the microblogging phenomenon ignited a competition among Wall Street's biggest names for the prestige of managing its coming-out party. Goldman Sachs is lead underwriter, a source familiar with the matter said on Thursday, which is a major coup for the Wall Street bank.

Twitter filed for an IPO confidentially under a 2012 law intended to help emerging corporations with less than $1 billion in revenue go public.

Seven-year old Twitter, which allows users to send out streams of 140-character messages, has become an indispensable tool to governments, corporations and celebrities seeking to communicate with their audience, and for individuals seeking both news and entertainment.

Chief Executive Dick Costolo has for years waved off suggestions it intended to go public, saying the company remained flush with cash. Facebook's mismanaged 2012 debut and subsequent share-price plunge also chilled the consumer-dotcom IPO market.

Facebook, however, has clawed its way back to its $38 IPO price in July, and the stock is at a record high after touching $45 this week.

Twitter, which has been valued by private investors at more than $10 billion, should break even this year and is on track for 40 percent annual growth at a $1 billion annual revenue run rate, Max Wolff of Greencrest Capital estimated.

"It's completely conquered mobile. It has an enormous social network. It's becoming a key utility as a second screen to TV and it's literally the first draft of history," Wolff said.

"Normally a company like Twitter would have been public for some time," he said.

Since Jack Dorsey, Twitter's inventor, dispatched the first tweet from a downtown San Francisco office in March 2006, the service has grown into a worldwide phenomenon with more than 200 million regular users contributing more than 400 million posts a day.

The company makes money by inserting paid, targeted ads that resemble ordinary, user-generated content. Twitter's success with its advertising model created a new paradigm for mobile advertising and prompted Facebook last year to adopt a similar ad product, called Sponsored Stories.

But Twitter was one of the first to prove that in-stream ads could be a viable way to make money in the mobile era.

"There was a lot of concern about whether they'd ever be able to insert advertising into their site," said Forrester analyst Nate Elliott. "They've shown it can be effective. They offer in many ways better measurement for marketers than larger companies like Facebook."

JOSTLING FOR ROLES

Wall Street continues to jostle for a slice of its impending debut, sources told Reuters on Thursday.

Technology bankers at major banks from JPMorgan and Credit Suisse Group AG to Morgan Stanley are still vying for roles in the IPO. Several are in informal conversations with the microblogging network's management, said two sources familiar with the matter who declined to be named because it is not public.

A similar race is on around China's Alibaba, which is expected to raise more than $15 billion this year. Bank chief executives such as JPMorgan's Jamie Dimon and Citigroup Inc's Michael Corbat have made it a point to meet Alibaba founder Jack Ma.

Twitter's debut, though much smaller than Facebook's, could generate tens of millions of dollars in fees from the underwriting mandate itself. Assuming it sells around 10 percent of its shares, or $1 billion, underwriters could stand to divide a fee pool of $40 million to $50 million, assuming an overall fee cut of 4 percent to 5 percent, according to Freeman & Co.

But the benefits for banks that underwrite the deal would likely be far-reaching.

"Some companies will say, 'We liked the way you handled Twitter, and we want to come to you first when we do our IPO,'" said David Menlow, president of IPOFinancial.com.

"It's not only bragging rights," Menlow said. "It's getting through the front door, which will line up banks for other transactions done after that, like debt financings and M&A."

Twitter is allowed to file its registration statement confidentially due to the Jumpstart Our Business Startups (JOBS) Act, a 2012 law that loosened some of the regulations surrounding the IPO process and other forms of capital raising.

Companies that file under that law do not have to reveal certain details until 21 days before embarking on an investor roadshow.

It could allow Twitter to avoid some of the harsh public scrutiny that other tech companies such as Groupon Inc faced.

Meanwhile, Silicon Valley boosters who were left red-faced by Facebook's stumble are hoping that Facebook's recovery and a smooth Twitter IPO would turn investor sentiment back toward consumer Internet companies.

"If 2012 was the Facebook IPO horror story, then all of a sudden 2013 is looking very nice," said Rick Heitzmann, a venture capitalist at Firstmark Capital, which has invested in consumer Internet companies including Pinterest. "We're now seeing that these are real companies proving they can drive very, very impressive revenue."

(Additional reporting by Nadia Damouni and Nicola Leske in New York and Alexei Oreskovic and Sarah McBride in San Francisco; Editing by Edwin Chan and Richard Chang)

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Comments (5)
AlkalineState wrote:
“Twitter kids itself into thinking people actually read it.”

Just because the Weiners of the world post something on twitter, that does not mean the public reads it. This news page is on a web site. People like real web sites. Not twitter.

Sep 12, 2013 6:37pm EDT  --  Report as abuse
Twain wrote:
Oh goody…stupidity is now profitable!

Sep 12, 2013 9:22pm EDT  --  Report as abuse
paintcan wrote:
“Companies that file under that law do not have to reveal certain details until 21 days before embarking on an investor roadshow. It could allow Twitter to avoid some of the harsh public scrutiny that other tech companies such as Groupon Inc faced.”

In other words, Twitter like Facebook, has to hide the facts as long as possible so the hype can more easily flourish?

Even the ads are a lie because they have to mask themselves as user content.

Will twitter stock pay dividends? What difference does it make what the income of the company may be if the investor never shares a part of it? The Wall Street investment bankers and traders can manage the stock price by buying blocks of stock or by putting investors into it among other stocks. The banker has the built in motivation to protect his own investment and even peddle his dogs.

The new tech barons must heavily influence the SEC because 1 billion dollars may be more than the town I live in is worth, or at least what the residential property is worth. Neither Facebook not Twitter have much physical substance to liquidate and are very nearly too diaphanous to be called industries at all. They are both like digital billboards that accept public graffiti that none of the graffiti artists pay for. And the twitter user must be hostile to the nuisance of ads or the ads wouldn’t have to hide as user content. I have no idea if there is such a thing as spam blocking for Twitter but spam blocking shoots the effectiveness of online advertising in the head. Other than some phony come-on from Linkedin that found me because they found my name from a friend who doesn’t actually use the site, I get no other ads from businesses I haven’t actually allowed to enter. I may have missed it the last time I marked as spam a raft of new ads. At least the viewer can’t white a conventional billboard out. The value of the stock rests entirely on the viewer’s perception of its popularity and that perception can be manipulated like all public opinion can be manipulated. All the while the biggest holders of the stock can sit-back getting rich, watching the gullible gamble on the manipulator’s hype of “success”. Is twitter going to be another 90% of the stick reserved for the company and ten percent in the hands of the public? After all, ten percent of the stock in public hands is a lot less expensive to manipulate so they can claim it is the value of the not traded 90%.

If Facebook and Twitter are harbingers of this country’s business prospects it will be a future built on PR, slight of hand tricks and very thin hot air. In the not too distant future China and India may be the only countries known for producing hard goods while this country invests in digital chatty dreamscapes that are very eager to know all the details of the lives of their patrons that the patrons may allow because it makes them feel significant or even popular and “loved” forgetting that is really the illusion created by hucksters?

Sep 13, 2013 9:20am EDT  --  Report as abuse
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