A little bird might have told you that Twitter was planning an IPO. That bird might have, in fact, been Twitter itself. The news has sent the Internet and Wall Street into a mania that, if you regularly follow the market, might not be that surprising. Mr. Market is anything but emotionally stable, especially when it comes to hotly anticipated tech companies (lest we need reminding of the Facebook Inc (NASDAQ:FB) IPO blitz).
While day traders and investment bankers foam at the mouth over Twitter’s IPO news, the Foolish investor steps away from the flock to reflect and ask some important questions. What kind of hurdles could Twitter face as a public company? What might its financial guts look like? And could it become the kind of classic long-term stock investors love to hold? Let’s size it up to try and get a better idea.
Public offering comparisons
After seeing many of its peers IPO before it, Twitter has the opportunity to learn from some of their mistakes. Research firm eMarketer has estimated Twitter’s ad revenue to be $582.8 million, and the company currently reportedly has 240 million monthly active users (MAUs). Unlike Facebook, which had already raked in just over $4 billion, and was not far from 1 billion users when it went public in May 2012, Twitter has much more room to grow, and investors love that kind of potential.
While by no means identical, Twitter’s smaller figures more closely resemble LinkedIn Corp (NYSE:LNKD), at the time of its IPO, than Facebook. The corporate social media giant had only 131 million registered users, and $436.1 million in TTM revenue, upon going public in 2011, and since then has performed astoundingly well, trading at more than twice its IPO price, and earning 86% more in revenue in two years. Twitter has shown potential for that kind of growth. Starting (relatively) small with strong growth potential is a good first step for a soon-to-be public company.
Diversify, diversify, diversify
Twitter may be a promisingly sized company, but it still needs to put a lot of thought into a very important aspect of its business: how it generates revenue. Currently, the company acquires its earnings through advertising and sponsored tweets. That’s certainly nothing to sneeze at, but a reliable multi-pronged approach to revenue is much more favorable for investors than a single monetary stream.