Twitter (TWTR - Analyst Report), the social media service with explosive growth, is due to be publically traded on the market on Thursday morning. This will mark one of the most anticipated initial public offerings since the debut of Facebook (FB - Analyst Report), and it could also signal an end—at least for now—of the ‘hot’ tech names waiting to go public.
Still, many investors are buzzing over the company’s launch, as many social media names have done quite well as of late. The Social Media ETF (SOCL - ETF report) has actually added nearly 50% this year, so it is definitely a great time for Twitter to go public (See Twitter IPO Puts These 3 ETFs in Focus).
And interest in the company is already surging in the last few pre-IPO days, as Twitter has closed its order books a day early, while the price range for the IPO is now between $23-$25. At the high end, this would result in a valuation of $13.9 billion, though many expect the price to jump once shares actually hit the market.
Factors to keep in mind
Twitter is already a global force with more than 230 million active users, and 100 million daily active users, who create close to half a billion tweets every day (according to the company S-1). This represents a huge growth level, as at the end of March 2012, monthly active users were just over the 130 million mark, so clearly the interest in Twitter is booming.
Revenues for Twitter have also grown significantly as of late, though the firm is still losing money. According to Twitter’s S-1, from 2011 to 2012, revenues increased by 198%, while the first nine months of 2012 compared to the first nine of 2013 saw a revenue increase of 106%.
Investors should note that Twitter relies heavily on mobile advertising to power its business, as this currently makes up 70% of its revenue. So, effective utilization of mobile will be key to the company’s growth picture, much like what we saw with Facebook and their earnings earlier in the year.
Twitter does have plenty of work to do on this front, and it must continue to grow its user base to be effective. The firm is still very deep in the red, so a great deal more in revenues need to come out of the capital raised from the IPO in order to make Twitter profitable.
There is also a concern over where people using Twitter are located, and if advertisers are willing to pay to reach the type of people that are on Twitter. According to the Twitter S-1, over three-fourths of all Twitter users are from markets outside the U.S., so a huge question mark is how effectively ads can be sold to these users (currently just 26% of the revenues come from ads on these international users’ pages).
Either way, Thursday will be an exciting day for technology stock investors, and those who have been following Twitter for years. Plus, IPOs have done quite well as of late, especially for investors who have hung on to these newly minted stocks for quite some time.
The First Trust US IPO Index Fund (FPX - ETF report) has actually moved higher by 78% over the past two years, compared to a gain in the S&P 500 of roughly 40%. So clearly, a focus on IPOs has been a winning strategy, regardless of how you feel about Twitter’s prospects going forward.
But the key question remains; will you be a buyer of Twitter on day one, or will you see how it plays out first?
Or, do you believe that Twitter is all-hype and that investors would be wise to stay away from this social media company?
Let us know in the comments section below!
And for more coverage on the Twitter IPO, make sure to come to Zacks at 9:40 (Eastern Time) on Thursday morning, where we will be hosting a special live event. Our two top social media gurus—Brian Bolan and Tracey Ryniec—will be laser-focused on the IPO, the social media space, and what investors should take away from this event. Make sure to tune in!