Hey there! I see you're not using JavaScript. Just FYI, I use MathJax to display things that deserve to look like math.


Computer "scientist"

Alex Clemmer is a computer programmer. Other programmers love Alex, excitedly describing him as "employed here" and "the boss's son".

Alex is also a Hacker School alum. Surely they do not at all regret admitting him!

Twitter's IPO in simple terms

October 06, 2013

The short answer to the question of why Twitter is IPO'ing now is that the timing is excellent, but the particulars of why this is true are actually really interesting.

Next year is a comparatively bad time to file.

Right now, the Jumpstart Our Business Startups (JOBS) act allows “emerging” companies like Twitter to file confidentially. Briefly speaking, filing confidentially allows Twitter to hold information that would normally be public until much later in the process. There are two primary advantages to this: (1) they can avoid a lot of the hype problems Facebook had to deal with, and (2) they can address finance questions from the SEC in private, thus sidestepping the accounting problems Groupon had to deal with.

The reason they are filing confidentially now is because they’re on track to make $1 billion in the fiscal year, which is the cutoff for eligibility for filing as an emerging company under the JOBS act. So, this is probably their last chance to file confidentially, and their last chance to show they learned something from the pain of their predecessors.

The climate for a Twitter IPO is quite good right now.

Stocks of similar Internet companies are doing well (or, in certain cases, better), so investors are likely to look favorably on a Twitter IPO. A very good sign is that Facebook is up to ~$50/share, which is well above their listing price of $38. Other recent-ish IPOs, like LinkedIn, are also doing well, but the recovery of Facebook (and, to a lesser extent, Groupon) is what investors will be thinking of, due comparatively painful experience.

The one obvious issue with IPO'ing right now is the government shutdown. Historically IPOs are very sensitive to market context, and perturbations like shutting down big swaths of the government are likely to make investors more cautious. Still, it’s hard to predict how specifically this will affect Twitter, and management is still holding enough enough cards (and holding them closely enough) that they will probably pull out of this ahead.

Twitter needs the IPO.

Because the filling was private, the valuation comes from an internal audit – they value themselves at $20.62/share for a total implied valuation of $9.7 billion.

Based on this valuation, Twitter looks to raise $1 billion.

They need these funds primarily for growth, and especially for flexibility in competing with companies like Facebook. But if Twitter plans to grow, it’s prudent to ask where they are now.

Their yearly revenue is closing in quickly on ten digits, and growing precipitously. Monthly actives were 218 million in June 2013, up from 151 million in June 2012, and 169 million of these users were located outside the US. Twitter is a product that is inherently mobile, and their mobile metrics look good in ways that Facebook’s don’t, which could be a serious advantage down the road.

Depending on where you stand on these metrics, you will either agree or disagree that a capital injection will give Twitter the leverage they need to pursue the high-impact growth opportunities. In either event, there is certainly no shortage of problems they will probably need to solve:

There are more issues like these, of course – you could go on for hours talking about them. But the point is not that these issues can’t be defeated, but that it would be much harder to do so without the capital Twitter is asking for. So the question for Twitter is, can they afford to ask for the money now?

Given the timing, it’s hard for me to see how they can not afford to ask now.


Overall I’d say that things are looking good for Twitter. There is the usual air of uncertainty that comes with social media, a notoriously fickle and tempestuous niche in tech. But, it’s hard to imagine Twitter could have expected a more fortuitous time to file.

comments powered by Disqus