As a father of two with twins on the way, Ironfire Capital founder Eric Jackson is to be forgiven for having babies on the brain. Where others look at their portfolio and see stocks, Jackson sees a small family of positions he's hoping to nurture into maturity. Through that lens Facebook (FB) is a child Jackson already has and he's expecting Twitter in a month or two. "I love both my kids equally. They're different," Jackson says of the two social media giants. "I think people have to keep that in mind when they're comparing these two companies."
After the way Mark Zuckerburg and company behaved during the IPO it's no wonder the stock got spanked for more than a year. "Facebook was a gouged out, max out the credit card IPO," Jackson says. Judging by the way it priced the offering, Facebook's strategy was to gather every crumb, collect every penny and leave nothing for the unlucky few "lucky" enough to get a share allocation.
In both its approach to the IPO process and maturity of its business model, Twitter isn't anything like Facebook. Facebook didn't actually need the cash for business operations. The company was profitable and huge from day one. The share dump was as much about cashing out early investors as it was growing the business. With a much less mature concept, negative cash flow, and limited user base ,Twitter is more akin to Yelp (YELP) or LinkedIn (LNKD), two companies that have made shareholders money since day one.
At the offering price Facebook was worth more than $100 billion. It had revenues of nearly $4 billion and was netting better than $1 of profit from each of its nearly one billion users. Twitter will debut at a market cap under $20 billion. This year Twitter will lose somewhere north of $100 million on about $600 million in revenue. As of June 30th Twitter had fewer than 1/4 the number of users as Facebook did the day it went public.
Another key difference is that Facebook flooded the market with shares, selling more than 15% of its total float on the first day and pushing billions more into the marketplace over the course of its first year. Twitter is set to sell $1 billion worth of stock, somewhere under 10% of its total share count.
Constraining the float is one of the keys to early performance of IPOs. LinkedIn, which like Twitter used Goldman Sachs (GS) as its lead underwriter, sold just 8.3% of its shares to the public. The constrained supply worked out well for investors; LinkedIn doubled its first day of trading. Shares of LinkedIn are up more than 160% since the close price at the end of its first day. Despite doubling over the last three months, Facebook investors who got in on day one have made a relatively paltry 33%.
Twitter has more growing pains ahead of it as a company, if not a stock. Part of Facebook's big, dumb appeal is that everyone knows how simple it is. You create an ID and look for your friends. For better or worse Facebook is so simple your mom can use it. Twitter is more specialized. It's become something more akin to a newswire rather than public forum. Less engaged users are less "sticky." Unless it can crack that problem Jackson sees Twitter as a place where 80% of the users watch the other 20% "duke it out" in Twitter fights or update news links.
If you want to pick a Twitter-fight with Jackson you can Tweet him @ericjackson and as always I'm @jeffmacke.
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