In the past, investing in technology was sure to be a wise decision. After all, you knew technology would continue to grow, and by investing in a company like Apple right when it made its first stock sale to the public, you were pretty confident you could make a heavy profit.
Facebook is a tech company that decided to make an initial public offering—an IPO—last year. So it came as no surprise when Twitter recently announced it was going public as well. Since Facebook is trading with a more than $100 billion market cap right now, it makes sense that Twitter would want to try out its luck too.
As this infographic by Maxwell Systems shows, investing in a tech company at its IPO is tempting, when you could have $18,828.92 right now if you would have invested $100 in Amazon at its IPO in 1997. However, before you decide to invest in Twitter, it’s important to make an informed choice and decide if it’s really going to be beneficial for your company.
When Will Twitter Go Public?
It’s unclear when Twitter will officially go public, but if Facebook continues to keep its high stock price, Twitter will probably move as fast as it can. Some sources speculate it might be early 2014 before the firm has everything in order.
On the other hand, if Facebook shares begin to drop, Twitter’s bankers will probably stop in their tracks. When Twitter finally does decide to make its public offering, there are certain people that will clearly benefit:
- Twitter’s founders. Even though the company has been through a lot of different rounds of funding, the founders will be worth a lot once everything resolves.
- The media. What kind of journalist or reporter wouldn’t love the talk surrounding Internet IPOs? If people are talking about them, that means people are going to click and read articles — which means the media can make a great deal of advertising dollars.
- Lawyers. There are a lot of billable hours that go into the IPO process, so it’s an enormous legal field day for anyone involved.
Twitter is also taking advantage of the JOBS Act, which allows companies that are labeled as “emerging growth” companies to file for confidential review. This means Twitter can keep financial data private until three weeks before it markets the shares.
As a result, people’s expectations will remain low because they won’t have a clear picture of what to expect from Twitter. This will probably give Twitter room to use a different pricing strategy than Facebook did, so it can avoid the costly IPO mistakes its rival made.
However, because Twitter is using the JOBS Act to avoid public scrutiny, investors won’t have as much time to analyze or scrutinize any changes Twitter makes to its filings before it finally makes its IPO. As an investor, this will lessen your planning time and may not provide you with as much information as you would like about the upcoming IPO.
What You Should Consider
With all of the buzz surrounding Twitter’s IPO, there are a few components you should consider before investing:
- Understand the fundamentals. Read articles, and learn exactly how Twitter works. Even though many sources say investors don’t have much experience using Twitter, make sure you do. Twitter may even plan to educate investors on its strategy before the IPO; either way, you should strive to educate yourself on the company and its strategy prior to investing.
- Understand its size. Try to read and get some numbers. How many people use Twitter? Examine its current value and predictions for its value moving forward. For instance, Twitter has a large mobile presence, so wireless device advertising may become a major part of its revenue this year.
- Look at its potential growth and profit. Even though nobody will know for sure, examine the forecasts for Twitter over the next few years. According to a Bloomberg update, Twitter was valued at $10.5 billion in August, while Facebook is currently valued at $109 billion. While it’s unfair to compare the two, it’s important to analyze their growth cycles so you get an idea of how Twitter will grow in the future.
Questions to Ask Yourself
Once you’ve gathered some information and are on your way to making an informed decision about Twitter’s IPO, you should still speculate about the future success of this company:
- Will Twitter remain popular? Don’t just listen to the news and statistics about Twitter now. Technology can change in the blink of an eye, so it’s important to speculate whether people will still be using and talking about it next year.
- Do they have the opportunity to gain new users? While Facebook still has more users and many people are not fond of Twitter’s brevity, try to look at how many users Twitter has gained each year. Is it likely it will continue to gain users after the IPO?
Will Twitter grow after it goes public? Even though Twitter started in 2006, it didn’t begin its advertising services until 2010. So it’s earlier in its growth cycle than Facebook was when it made its IPO. This could be promising for Twitter, meaning it might have a better chance of growing rapidly after the company goes public. However, it’s definitely a question you’ll want to examine as thoroughly as possible before you invest.
You’ll never know for sure whether an IPO is going to go up or down, so it’s a risk in many ways. But understanding the business basics of your investment before you make it is key if you want to benefit from Twitter’s IPO.
Don’t invest just because the company is large and exciting right now. Even though there’s a lot of talk surrounding Twitter, a wise investment should involve a lot of thought and consideration.