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:

• Twitter is not a profitable company – they lost $69 million in the first 6 months of 2013. An injection of capital is going to need to produce a sharp upward inflection in revenue, eventually. (Their $315 acquisition of MoPub, an advertising firm, is a step in the right direction, but it’s worth wondering what their plan overall is.)
• In America, they make about $2 per 1000 views. But outside America, they make just $0.30 per 1000 views. In their own documents they admit that capitalizing on foreign markets could require very serious consumption of resources. This is worrying in the long term because 300 million people live in the US, while 6 billion people live elsewhere. So, what is their plan for real growth?
• They are arguably much better suited to mobile than Facebook – important because mobile is the place where Facebook is decidedly not dominant, and may actually never be dominant. How, if at all do they plan to exploit this? Especially abroad.

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.

Conclusions

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.

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