Is Twitter leaking to the media to primp for IPO?
(MoneyWatch) COMMENTARY Citing Twitter insiders, Bloomberg reports that the company is expected to generate $1 billion in sales during 2014, or double the growth rate that outside observers have estimated for the social media company.
Those forecasts are based on internal forecasts and could change, or the "microblogging" site could miss them outright. Still, that growth number puts the service well ahead of the pace that SharesPost had only recently estimated for Twitter, which the private market didn't expect to reach $1 billion until 2016.
There may seem something strange on the surface of this report. What startup could accurately project sales two years in advance? And why would "two people with knowledge of the matter" -- which would have to mean upper management, board directors, or major investors -- spill the beans on something that seems so remote at this point?
When it comes to early-stage high-tech companies backed by oodles of venture capital, money talk ultimately comes down to whether investors can profitably "exit" their investment. That's what this sounds like -- people with money invested in the company who are trying to create on the part of Wall Street a long-term favorable financial perception of Twitter.
The timing is telling. Facebook (FB), which has been a rival of Twitter for the attention of investors, just went public and whose stock hit a brick wall. It is currently trading at 55 percent of its IPO market cap. There are potential investigations brewing into underwriters Morgan Stanley (MS) and Goldman Sachs (GS). Some shareholders have already filed lawsuits.
Not that the IPO market didn't have trouble enough, as Reuters has reported:
Globally, the amount raised from stock market flotations has slumped 46 percent this year compared with the same period of 2011. Excluding Facebook, 72 U.S.-listed companies have filed, raising proceeds of $13.1 billion, a 53 percent decrease from a year ago, according to Thomson Reuters data.Things are rocky, and Facebook was the last straw on some poor camel's back. That has implications for tech companies that want to eventually have an IPO:
Hong Kong, one of the busiest listing venues in recent years, has seen a particularly dramatic drop, with deal volumes falling 85 percent in the first five months of 2012. And 12 U.S. IPOs have been withdrawn or postponed in May, as well.
- They must make real money and show strong growth
- A strong IPO in the short run isn't an option
- Winning the trust of investors, especially if your company has been heavily hyped in the social media space, will take time and be tricky
It's not unusual for insiders to drop "hints" that are really PR plays. Facebook did it. Groupon (GRPN) did it. Yelp and LinkedIn (LNKD) did it. And with Twitter having scored $1.16 billion in venture funding, according to CrunchBase, the company wants to be the next really big IPO.
There is another possibility as well. It might be that some insiders are looking to boost the reputation of Twitter to move some stock on private markets like SharesPost and SecondMarket. After all, Facebook shareholders who sold stock on these markets before the IPO did significantly better than had they unloaded at the offering price or even held onto their shares.
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