Facebook’s (FB) messy IPO last May is going down as one of the worst debuts in history, and certainly one of the biggest finance events of 2012; if only because of the hype. Looking ahead to 2013, you can’t help but wonder whether Twitter is the next big event on the IPO docket. A management shuffle just last week makes it look like the company is taking some preparations to go public.
“Could they do an IPO in 2013? For sure,” says Eric Jackson, founder of IronFire Capital, “they’re continuing to grow by leaps and bounds.”
There’s chatter that Twitter ad revenues could top $1 billion next year, well-positioning the company to start a roadshow to IPO. That would be extremely impressive growth when, according to Techcrunch, Twitter brought in roughly $350 million in total revenue for 2012, with nearly 50% of that coming from mobile ads.
“Whether it’s luck or smarts, they’ve figured out that their service is uniquely adapted for the mobile environment and they’re having an easier time selling ads in their form factor compared to Facebook,” says Jackson. “So they could do it [IPO] in 2013, but I don’t think they should."
In addition to Facebook, Jackson points to struggling tech start-ups Zynga (ZNGA) and Groupon (GRPN), which both went public in late 2011, and experienced major growing pains throughout this year. Shares of the companies are down, 75% and 78%, respectively in 2012.
And Instagram is the latest to learn the hard way. The photo-sharing appmaker, which is owned by Facebook, ruffled feathers in an attempt to boost revenue by sharing users’ photos with advertisers. The revolt was so fierce that the company backed off and apologized immediately.
Lesson learned; although you can’t fault them for trying to monetize content on the platform. When Facebook bought Instagram for a cool $1 billion in April, it wasn’t generating any revenue.
“I think the Instagram uproar is really interesting, and the challenges that Facebook has faced in trying to get ads stuffed into their streams and how people have reacted to that, is also interesting,” says Jackson. “It raises the question: Is advertising really the right business model for a lot of these mobile companies?”
He believes Twitter has an advantage here over Facebook simply because their ads are smaller and easier to ignore. “People don’t like ads, and so if Twitter’s not going to make money off of ads, what are they going to make money off of?”
That realism is precisely why Jackson thinks the company shouldn't go it alone and is a ripe buyout candidate.
“I think Apple would want to own them, not for an ad revenue stream, but for this knowledge graph they would be able to understand about their users. That’s really interesting for people like Nielsen -we saw them do a deal with Twitter recently.”
It’s an intriguing proposition for what promises to be an interesting year ahead for Twitter.
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