Twitter IPO Likely to Hit US Stock Market on Nov 15 | Why NASDAQ Ordered Dry Run to Twitter

Twitter-IPO Valuations Per ShareTwitter-IPO Valuations Per Share

Twitter is an online social networking and microblogging company that permits registered users to send and read text messages upto 140 characters while unregistered users can only read them.The company was created in March 2006 by Jack Dorsey, Biz Stone, Evan Williams and Noah Glass and was launched in by July 2006. Twitter started its journey with a privately funded startup with offices in the South of Market neighborhood of San Francisco, California.As per the company report it had 500 million registered users with average 340 million tweets or text messages per day. It is one of the ten most visited websites with 1.6 billion search queries. It is also known by the name as SMS of the internet.

Twitter IPO

Twitter on the third week of October has announced to go public. Earlier in the end of September, it declared its intention to make public its secret filing for an initial public offering. It is not clear when this offering will be launched but it is learnt that the company was moving with all due speed.

JOBS Act & Secret Filing

Twitter IPO is one of the most anticipated of the recent years although it is much smaller than $16 billion offering by Facebook last year. Twitter has less than one billion revenue last year while Facebook had $3.7 billion in sales in 2011, the year before its IPO and it reported $1.13 billion for the quarter before its initial filing. The US companies having less than $1 billion revenue in the preceding year are allowed to file secretly IPO. The Jumpstart Our Business Startups Act or JOBS Act passed in April 2012, encourages funding of small businesses United States by easing various securities regulations.  It allows such businesses to submit its drafted IPO prospectus to the Securities and Exchange Commission privately. The regulars privately view the adherence of the legal formalities beyond public view. Eventually when the documents are publicly filed detailed prospectus is revealed. The company has to disclose its public prospectus 21 days before it proposes a price range for the issue. It facilitates ways to protect the financial facts from their competitors for the companies which are considering going public. If they later plan to refrain from IPO, they can postpone or withdraw. Some experts are of opinion that Twitter IPO will have wide interest from both retail and institutional investors. So, the people should be given more than 21 days time to review its financial statements.

Why NASDAQ Ordered Dry Run to Twitter

Twitter has expressed their willingness that it has chosen to list with the NYSE over ITS rival NASDAQ. However, the New York Stock Exchange isn’t taking any chances with Twitter’s initial Public Offering with the lessons they have learnt from Face book IPO. When NASDAQ won the Facebook listing one of the biggest IPO in recent years, it was marred with technical glitchesdue to trading delays and order failures and NASDAQ wasslapped with fine of $10 million by the US Securities and Exchange Commission. This was the largest fine ever levied against a stock exchange. So NASDAQ has decided to conduct a dry run of their systems to prepare for Twitter’s IPO.

How Good is Twitter: Financially

If we look and compare the earning of Twitter over its previous year the revenue of each quarter, it is more than double of the previous year’s revenue same quarter but the magnitude of those growth figures is shrinking. The ad revenue grew by 108% in recent quarter but it was 205% just six months ago. There are some more red flags: March quarter was almost flat with December quarter. If we ignore this as seasonality we should remember that a company with hyper growth should not experience seasonality. The real trend becomes more visible if we observe Twitter’s growth curve: it is awfully linear, not rising or exponential. Although it never means it can’t tilt more vertically in the future but it seems will definitely need a catalyst to do so. Neither Twitter nor Facebook solely relies on advertisement for revenue. Facebook additionally earns from gaming while Twitter has a data business that offer data license to its data partners. Twitter earned $18 million or 13% of its last quarter’s revenue from data business. It is a fact that Twitter has no even growth in this data business. It remained flat for the prior three quarters until it spiked 32% in the last three months.

Twitter Historical Financial Results




1st Half 2012

1st Half 2013







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Private traders have valued Twitter at around $10 billion while the Facebook IPO was valued 10 times more than that. It is still uncertain what valuation Twitter will seek in its IPO. Goldman Sachs Group Inc has been appointed as the main banker to the issue. Last week Twitter added two more banks to the IPO such as J.P. Morgan Chase and Morgan Stanley.

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