Twitter Is Ready for Its IPO

TheStreet.com

NEW YORK (TheStreet) -- There is increasing chatter among IPO watchers that Twitter may test the initial public offering waters later this year.

Should they? Of course.

Here's why:

The company is big enough. Many people have whispered that Twitter will do $600 million in ad revenue this year and over a billion dollars next year. It has basically been on a path of doubling revenue every year in the last few years.

This is enormous validation of the strength of its platform, even though it's much smaller than Facebook's from a user number perspective. Facebook has done $5 billion in the last 12 months, so it is still much larger than Twitter, but Twitter is just starting to scratch the surface on monetization.

Twitter was born with mobile in its DNA. When creator Jack Dorsey sent the first tweet in 2006, it was from a mobile phone. It wasn't from a desktop.

From the start, Twitter has been a mobile company, unlike Facebook which has had to morph into mobile. It's because of its natural alignment with mobile that Twitter actually generated more mobile revenue last year than Facebook. This is remarkable as Facebook was two to three times as big as Twitter last year in terms of users. Even though Facebook will probably exceed Twitter in mobile revenue this year because of their acute focus on that, Twitter is still in the very early innings of making money off their user base.



Twitter is going to have to go public at some point anyway, so it should be sooner rather than later.

There's a point of view now in Silicon Valley that Wall Street is an evil and short-term-focused place and so private companies should take as long as possible before finally accepting SEC rules that require them to IPO. I disagree with this view.

To me, going public is like becoming a parent: No amount of books you read before the fact teaches you how to do it. You learn how to be a parent by doing it, trial by fire style. Of course, you make mistakes but you learn how to cope and deal with the increased stress and time demands. As you get more and more kids, you become better and better at managing stress.

Ever see a parent of three listening to a single person complain about how stressful their weekend was? Usually, the single person says something like: "Oh my God, I had all this deadline stuff from work to deal with and I had to clean my apartment as well..." Usually, the parent turns and rolls his/her eyes.

My point is this: You mature as a company and as a management team when you IPO. Look at Facebook now compared to 18 months ago. Was it throwing as much at the wall then as it is now in terms of launching new services and trying to make money? No. Why? Because the investors weren't pushing it to and the new public ones are.

Was Facebook's board as good then without two women as it is now? No. Why did it change? Because investors were incensed at Mark Zuckerberg for this oversight and he bowed to this outside pressure. In my view, Facebook is a much stronger company today than it was then and I credit the "crazy" and "short-sighted" Wall Street investors for helping it. I think this outside pressure from Wall Street will be equally beneficial to Twitter.

Twitter's adoption by TV and media is remarkable. Twitter will probably never get to the size of Facebook in terms of users. However, turn on the TV and notice how every other ad now promotes a key hashtag. Notice how every show includes a hashtag next to the network logo.

For a company that was always looked down upon by Facebook investors and employees, it's amazing what Twitter has accomplished in terms of mindshare. I credit Dick Costolo (the CEO) and Adam Bain (the head of Sales) for this focus. The fact that they have become so prevalent gives them a huge opportunity to jump off and monetize across all traditional and now new Web/mobile media platforms. That story will be an integral part of how they sell Twitter on an IPO roadshow.

So, assuming they go out this year, what will Twitter be worth? It's really hard to say. Based on the idea that it'll do $1 billion next year (2014), I think it'll get a minimum of 10 times those sales, which would be a $10 billion valuation.

However, this being a big IPO, I expect the bankers and media to hype it up and it wouldn't surprise me to see investors value Twitter and 15, 20 or even 30 times sales, which would mean a valuation up to $30 billion.



I don't think a $30 billion valuation would be sustainable for Twitter, just like a $75 billion to $100 billion valuation for Facebook wasn't sustainable in the end. So, whether it's a good investment or not will depend on how frothy the markets are at the time Twitter goes out.

However, in the long term I continue to think Twitter is going to be a fabulous and extremely important player in media for years to come. Its IPO will be a new chapter in that story.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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