The markets are gearing up for what could be one of the biggest IPOs all year. Twitter could go public as early as November 15.
But not all IPOs go without a hitch. Here are five things that could go wrong:
1. Your mom doesn't use it Remember the Facebook Inc (NASDAQ:FB) IPO? It was one of the most closely watched IPOs in recent memory. Everyone from investment bankers to stock market novices were talking up the first-day potential. Even people who ordinarily have very little to say about investing, like personal finance "expert" Dave Ramsey, issued warnings to investors about buying Facebook shares at IPO.
Twitter isn't like Facebook, though. It has substantially fewer users, and the users it does have are younger -- the people you wouldn't expect to have huge brokerage accounts. Twitter and its bankers could easily overshoot on the number of people who will want to buy the stock when it lists.
2. The SEC may tear up its filings Twitter's disclosures have already come into question. The company reports that roughly 5% of its users are fake accounts. But some are saying the number is much higher than that. Fake accounts are all over Twitter, used to do everything from driving up follower counts on promotional Twitter pages to filling up the site with #blogspam.
Groupon Inc (NASDAQ:GRPN) saw what happens when the SEC doesn't like the way you file your paperwork. The company lost much of its value as the regulatory agency called many of its disclosures and accounting policies into question. Twitter will want to avoid the same inspection pre- and post-IPO.
3. People might realize it's, you know, losing money When Twitter goes public, it will do so as an unprofitable social networking company. Its revenues are growing at an obscene rate, but its profits are nowhere to be found. Depending on the size of the initial public offering, Twitter may have to come back to the markets to issue new shares to raise more capital, diluting shareholders in the process.
It remains to be seen whether Twitter can turn a profit. If it can't, expect another dilutive offering after its IPO. That could send shares plummeting just months after it lists on the stock exchanges, unless Elon Musk joins the board of directors at the same time. His magic touch seems to send any stock rocketing on a secondary offering.