Twitter is the latest tech company to pursue an initial public offering; its shares are scheduled to begin trading Thursday morning on the New York Stock Exchange under the symbol TWTR. Twitter took advantage of a of the JOBS Act that allows companies with under $1 billion in revenue to file IPO documents confidentially while they are being reviewed by the SEC. The IPO filing became public on October 3rd and revealed, among other things, that Twitter is seeking to raise $1 billion dollars. The IPO filing also revealed financial information about the company that wasn’t previously available to the public. Twitter has shown some rapid growth, with revenue rising 198% and net loss declining 38% in the last year.
The large majority of Twitter’s revenue comes from advertising. This worries most investors, as Twitter draws smaller numbers than TV networks or Facebook. Recent high-profile tech company IPOS have been hit or miss, which makes investors wonder whether Twitter’s performance will be more like LinkedIn, whose shares are trading at over 400% of its May 2011 IPO price, or if it will perform more like Groupon and Zynga, which are trading at around 40 and 70%, respectively, below their 2011 IPO prices.
A recent decision to raise the price range right before the IPO, to between $23 to $25 valuing the company at almost $14 billion at the high end, reminds some of Facebook’s aggressive pre-IPO strategies. Facebook made the mistake of aggressively raising the price of its shares before its IPO and issuing too many shares, which caused its stock to trade below the IPO price for almost a year. Although Twitter did mimic Facebook’s aggressive price raising strategy, it’s still planning to sell a limited number of shares.
Many believe that Twitter is a bad investment, but the recent increase in the price range for the IPO reflects high demand from institutional investors. Only time will tell whether Twitter will be able to survive in the long term, or if we are experiencing another bubble.