December 12, 2013
Twitter announces it is going public
Company takes first step toward issuing long-awaited Silicon Valley IPO
NEW YORK — Twitter has decided to go public. The company aptly announced on its short messaging service yesterday afternoon that it has filed documents for an initial public offering of stock.
San Francisco based Twitter Inc. posted on its official Twitter account that it has “confidentially submitted an S-1 to the SEC for a planned IPO.”
The documents Twitter filed with the Securities and Exchange Commission are sealed, as Twitter is taking advantage of federal legislation passed last year that allows companies with less than US$1 billion in revenue in its last fiscal year to avoid submitting public IPO documents. The confidentiality will likely help Twitter avoid the public hoopla and intense scrutiny that surrounded the initial public offerings of other high-profile social networking companies, including Facebook Inc., which went public last May 2012.
Under the law, Twitter’s financial statements and other sensitive information contained in the IPO filing must become publicly available at least 21 days before company’s executives begin travelling around the country to meet with potential investors; a process known as a “road show.”
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 last Thursday, which is a major coup for the Wall Street bank.
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 US$38 IPO price in July, and the stock is at a record high after touching US$45 this week.
Twitter, which has been valued by private investors at more than US$10 billion, should break even this year and is on track for 40 percent annual growth at a US$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.
Most of Twitter’s revenue comes from advertising. Research firm eMarketer estimates that Twitter will generate US$582.8 million in worldwide ad revenue this year, up from US$288.3 million in 2012. By comparison, Facebook had ad revenue of US$1.6 billion in the April-June quarter of this year. By 2015, Twitter’s annual ad revenue is expected to hit US$1.33 billion.
Twitter is planning its public offering at a time of heightened investor interest in the IPO market. There have been 131 IPOs that have priced so far this year, according to IPO tracking firm Renaissance Capital. That’s a 44 percent increase from the same period the year before. If the momentum continues, 2013 will have the most IPO pricings since 2007, a year before the financial crisis.
The law that allowed Twitter to file its initial IPO documents confidentially is called the Jumpstart Our Business Startups, or JOBS, Act. President Barack Obama signed the law in 2012. It is designed to make it easier for small businesses and startups to grow and create jobs.
The law includes a provision that allows a company with revenue below US$1 billion to file its registration statement for an initial public offering of stock with the Securities and Exchange Commission confidentially. This allows the paperwork to remain private until 21 days before the company starts marketing the deal to investors.
Herald with AP, Reuters