Twitter IPO a windfall for early investors, marketers – but what about users?
Video: Twitter revealed plan to go public, leaving Wall Street investors all a twitter with high hopes. Christina Stevens reports.
For Twitter, going public took on an entirely new meaning this week, as the social media company filed documents signalling its intent to issue shares in a float that could well exceed $10 billion.
Early Canadian investors as well as marketers are hailing the long-awaited move as a huge opportunity for advertisers to better reach consumers and reverse the bad taste capital markets were left with from when rival platform Facebook fumbled an IPO last year.
Whether Twitter’s over 200 million users find a platform much more geared toward getting ads in front you than distributing retweets between friends and followers remains to be seen.
“From a marketer’s perspective, this is the holy grail,” Jeff Quipp, chief executive of Toronto-based digital advertising company Search Engine People, said.
“Yes, we’re likely to lose all of the free options we had available to us earlier. But we’ll have a lot more powerful paid options available to us now,” he said, adding that marketers will happily fork over a slice of ad budgets to Twitter, “so long as it produces a good ROI [return on investment].”
Twitter’s IPO has been long expected. The company has been ramping up its advertising products and working to boost ad revenue in preparation. But it is still tiny compared with Facebook, which saw its hotly anticipated IPO implode last year amid worries about its ability to grow mobile ad revenue.
Founded in 2006 and named after a sound tiny birds make, Twitter has since grown into a communications medium of remarkable cultural significance despite its relatively small size.
In seven years, Twitter has grown from a few thousand users to more than 200 million. Its users include heads of state, celebrities, revolutionaries and journalists. Unlike Facebook, which insists that its users go by their real names, Twitter leaves room for parody and anonymity. As such, there are accounts for Jesus Christ and Lord Voldemort, Harry Potter’s mortal enemy.
Twitter’s big appeal is in its simplicity. Users can send short messages – either public or private – that consist of up to 140 characters. Anyone can “follow” anyone else, but the relationship doesn’t have to be reciprocal. This has made the service especially appealing for celebrities and companies that use it to communicate directly with customers.
Most of Twitter’s revenue comes from advertising. Research firm eMarketer estimates that Twitter will generate $582.8 million in worldwide ad revenue this year, up from $288.3 million in 2012. By comparison, Facebook had ad revenue of $1.6 billion in the April-June quarter of this year. By 2015, Twitter’s annual ad revenue is expected to hit $1.33 billion.
Boris Wertz, a founder of startup investment fund Version One Ventures in Toronto, owns a small sliver of the social media heavyweight after selling Canadian startup Summify to the San Francisco-based company.
Wertz said he expects Twitter’s preeminent position as the world’s digital sounding board to remain unchallenged for some time, generating new advertising opportunities along the way. Analysts say the big challenge will being able to establish itself as a major contender in the mobile ad market.
“It’s kind of the operating system of the world for how news and information is distributed. That’s going to be something that is worth a lot over a long period of time,” Wertz said.
Quipp said Twitter’s been experimenting with new revenue models in recent years, like direct purchasing through individual tweet messages. A listing on a U.S. exchange like the Nasdaq – which will force the firm to publicly disclose its financial performance to shareholders – will spur Twitter to dramatically ramp up its advertising strategies.
The company will also want to avoid making the same mistakes Facebook made last year when it loudly marched to market with a high initial offering price which fell almost immediately as initial investors bailed on the stock, and the social media company failed to meet overhyped financial expectations.
“If the valuation gets crazy right away, it might not be a good investment at the IPO I don’t know, but we’ll see where it stands,” Wertz said.
But he said, “Fundamentally, the role that [Twitter] plays in society today, I have no doubt it’s going to be one of the important, standalone tech companies for some time.”
The company’s social utility aside, with a valuation that analysts are pegging at between $10 billion and $15 billion, investors lucky enough to own a piece of pre-IPO Twitter have reason to celebrate.
“As a shareholder I certainly really appreciate it,” Wertz said.
Time will tell if Twitter’s followers do, too.
Watch: Boris Wertz, a founder of startup investment fund Version One Ventures in Toronto, talks Twitter
With files from Kam Razavi and the Associated Press
© Shaw Media, 2013