The wise learns from others mistakes. The best recent example is Twitter Inc. as the social media company is more inclined toward NYSE Euronext Inc. (NYX) over Nasdaq OMX Group Inc. (NDAQ) to make its market debut via initial public offering (IPO). Although a final word is yet to come from the horse’s mouth, Twitter’s preference for NYSE owes much to Nasdaq’s recent technical anomalies that cannot be ignored any further, according to Street.com.
Earlier this month, Twitter filed for an IPO with the Securities Exchange Commission (SEC), through an S-1 filing. Accordingly, Twitter is anticipated to vend 10% of its stake, or about 50−55 million shares, to the common public for about $28−30 per share. This is expected to generate about $1.4−1.65 billion, including underwriters’ fees of about $60−70 million, in the IPO, which is expected to culminate by the end of 2013.
Moreover, these calculations sum up Twitter’s enterprise value at nearly $15−16 billion. While Goldman Sachs (GS) is the leading advisor for the IPO, other investment banking giants such as JPMorgan Chase & Co. (JPM) and Morgan Stanley (MS) are also involved, according to Reuters.
Why Tweet?
Founded in 2006 and based out of San Francisco, Twitter is a social networking website company that provides real-time information network through its user base of more than 200 million people across the globe. The company primarily generates revenue from social, business and political advertisements posted on its media platform.
Armed with a top line of $288 million, this social media company is expected to generate nearly $583 million in revenues in 2013, which should escalate to $1.3 billion by 2015, as estimated by research firm EMarketer Inc. Twitter may not enjoy Facebook Inc.’s (FB) fame that posted over $5.0 billion in revenues in 2012, with an estimate of generating top line of about $7.3 billion in 2013, but it is still a strong player in the market.
Twitter is well on its way to improve monetization as it has been focusing on rolling out a series of advertisement products over the last couple of years. The company also benefits from a strong global brand recognition and sturdy capital. We believe Twitter’s rapidly rising operational scale coupled with stock market appreciation and business building, once it gets listed, will help it to gain further traction and improve margins.
Once Bitten, Twice Careful
Although the exchanges or Twitter itself are yet to confirm the listing, Nasdaq appears to be out of the ring given its technological troubles in the recent past. The market is yet to forget to Facebook’s $160 billion worth of IPO in May 2012, which was spoiled due to Nasdaq’s faulty technology and passive management.
Subsequently, 30,000 shares of Facebook got stuck at the prime trading period for over 2 hours. Nasdaq was the first ever exchange who has not only been penalized with a fine of $10 million by the SEC, but was also impelled to create a fund of $62 million in order to compensate for the related losses.
On top of that, the severe 3-hour technical outage experienced by Nasdaq last month and another earlier this month have raised ambiguity over the company’s technological competence, shaking the overall market confidence.
In the past, Nasdaq has dominated the global listings business particularly crowned with the IPOs of Intel Corp. (INTC), Apple Inc. (AAPL) and Google Inc. (GOOG), to name a few. Of late, though, NYSE appears to have won the confidence of the latest start-ups like LinkedIn Corp. (LNKD) and Yelp Inc. (YELP), among others, given its high-grade technology and low latency processes for effective risk management. Recently, Oracle Corp. (ORCL) also shifted to NYSE from Nasdaq.
Overall, we believe that Nasdaq will have to bear the brunt of its technical glitches at least for some more time. On the other hand, Twitter appears to make a fault-proof entry in the market.
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