'We've only just scratched the surface of everything that Twitter can become," chief executive Dick Costolo tells viewers in the roadshow video made to woo investors before the company's stock-market debut this week.
There are around 2.4 billion people online worldwide, and 10% of them are active on Twitter. Impressive, but a long way behind Facebook, which claims its monthly users amount to half the online population – 1.2 billion. Costolo's challenge is to coax the many millions who are too daunted or confused by Twitter into joining the conversation.
The extent to which investors believe he can do this will help set the float price, which is due to be confirmed on Wednesday. And that price will determine whether Twitter surges during its first day of trading on Thursday, or goes the way of online coupon site Groupon, whose shares have lost half their original value since it floated in 2011.
When Groupon came to market it was the first major internet stock to go public since Google in 2004. Although pre-IPO investors complained at the time that Google had underestimated its own value, helping the shares soar on the first day, Facebook last year illustrated the dangers of allowing a privileged few early backers to cash in too handsomely at the IPO. Despite the early controversy, the search giant's successful career as a public company remains the ideal.
In its roadshow, which started last Monday, Twitter is marketing 70m shares at between $17 and $20 apiece, valuing it at $10.9bn (£6.8bn). But Wall Street believes either the price or the number of shares sold are likely to be increased; Facebook notoriously increased both just before its first day of trading.
"It's conservative and likely going to be raised as they start the roadshow at least once if not twice," Sam Hamadeh of PrivCo, a research firm that specialises in private companies, said of Twitter's pricing. "The size of the offering is also a bit small. But they may only choose to raise the price once they gauge investor demand. Raising both the price and the size was Facebook's fatal mistake."
Pivotal Research Group has set a $29 price target, painting a picture of Twitter in five years' time as a company whose revenues have grown from the $650m forecast for this year to $4bn. The profit margin, it said, will be in the 30% range; Twitter is loss-making today. As a new business with losses to carry forward, Twitter will pay little tax in cash. Any levies due will be reduced by the granting of tax deductible stock options to employees. But Twitter will remain much smaller than Facebook – about a fifth of its size. "Twitter is a niche business that will not likely be used by everybody, versus Facebook, which essentially is," said Pivotal analyst Brian Wieser.
Rick Sumner at research group Morningstar said Twitter was "undervalued" at $20 and has put a $26 fair value estimate on the shares. He is more bullish about its prospects than Wieser. His "base case" scenario – pitched between the most negative and positive outcomes – envisages that, in 10 years, Twitter will have 1 billion users, reaching about half Facebook's eventual size. It will also earn about $10 per user – giving annual sales approaching $10bn.
"Although the company has not yet penetrated the mass market, we believe it will succeed in simplifying its applications, improving accessibility for users, and delivering a more pervasive Twitter experience," Sumner said.
Although Barack Obama, Pope Francis and a long list of celebrities, politicians, business leaders and journalists have made Twitter famous, by new media standards it is still not considered mass-market. The company's own IPO filings explain succinctly why this is. The prospectus states: "New users may initially find our product confusing."
The signup process is partly to blame. When a user joins Facebook, the software can immediately delve into their contacts list and finds other friends on the platform. Twitter has not yet found a way to do this: new arrivals have to build their own lists of people to follow, which means deciding what they have come to the platform to learn about.
While Facebook is the internet equivalent of a telephone directory, where just a home page is enough of a presence, Twitter is a platform for those who actively have something to say and are not afraid of the backlash expressing an opinion can often generate. But not everyone wants to be a public opinion-former, or engage in pithy 140-character exchanges with academics and analysts.
Twitter is doing everything to make itself easier to use. Costolo promises in his video that it will "bridge the gap" between wide awareness and the actual number of people signing up. Potential investors will have to decide whether taking Twitter to the mass market could justify some of the more bullish Wall Street predictions, or merely dilute the platform's power to influence.
No comments:
Post a Comment