Twitter Doesn’t Want Everything to Be Public
Naturally, when Twitter Inc. announced its plans for an initial public offering, it issued a statement of merely 135 characters. Economy of language is admirable by the logic of social-media posts. Whether it will help the investing public is another matter.
Under the JOBS Act of 2012, companies that intend to go public can keep their financials secret until 21 days before they begin their “roadshow” to pitch investors, as long as they earn less than $1 billion in annual revenue. That weak threshold would have applied to about 90 percent of public offerings in the past two decades, and it allows companies to work with regulators for months to sort out their businesses without any public scrutiny.
Clearly, such secrecy could benefit Twitter. After notorious recent flops from the likes of Facebook Inc. (FB), Zynga Inc. (ZNGA) and Groupon Inc. (GRPN), the company may be hoping to avoid undue hype for its offering or to reduce the chances that one of its employees will make tone-deaf public statements. (“You’ve got to stay focused on doing the right stuff,” Mark Zuckerberg not so helpfully suggested recently, when asked what his advice would be for Twitter’s IPO.)
Twitter may also be able to hash out significant regulatory problems outside of public scrutiny. One could argue that this shouldn’t matter: If the Securities and Exchange Commission finds that the company has made a misleading statement and Twitter rewrites its documents accordingly, who gets harmed? Yet surely such mistakes are indicative of the way the company conducts business; at a minimum they suggest whether it’s getting good legal advice. And the back-and-forth itself is useful information. Groupon’s unusual pre-IPO accounting measures offer a relevant exhibit. At the moment, no one outside of Twitter’s offices knows.
What we do know about Twitter is that in seven short years, the service has amassed about 200 million users, strode confidently into the mobile era, introduced smoothly integrated and well-targeted advertising, made some ambitious acquisitions and (unlike some other social-media behemoths we could mention) mostly avoided antagonizing its users. Even the pope is a fan.
All of which seems to be paying off. Twitter was valued last month at about $10.5 billion by GSV Capital Corp., one of its investors. The consultant eMarketer has estimated that the company will earn $583 million in advertising revenue this year and $950 million in 2014, up from $288 million last year.
Facebook’s example suggests another positive: After a calamitous rollout last year, and a subsequent swoon in its stock price, its shares reached an all-time high yesterday as investors grew increasingly confident in its ability to sell ads on smartphones and tablets. Mobile is clearly a strength for Twitter, making up 53 percent of its ad revenue and growing, according to eMarketer.
Twitter’s acquisition of the mobile ad exchange MoPub -- which will enable it to sell smartphone ads that capitalize on users’ desktop browsing habits -- looks like it will only intensify this strength. Combined with the improving tools Twitter offers to help advertisers target customers, and its increasingly dominant role as the go-to companion service to televised events, this could allow Twitter to connect with users at a more immediate and engaging level. With some 400 million messages posted to the site each day, the amount of data Twitter can amass about its users and then sell to advertisers has enormous potential.
With so many promising signs, Twitter’s decision to file confidentially with the SEC -- while logical -- is disappointing. It’s true that any issues the SEC finds with Twitter’s filing will be divulged well before the IPO. But using secrecy to manage the company’s reputation in the meantime and avoid the public eye looks unseemly.
And reputation is the immortal part of a digital business. One day, a company looks destined to dominate the Internet forevermore; the next, it’s MySpace. Twitter has done many things right. That’s no guarantee that people will still like it a decade from now. Or even a year from now. If it intends to be a lasting public business, it should welcome public scrutiny.
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