Will the Twitter IPO Turn Out to Be a Cautionary Tale?


The clock is ticking and the time is approaching when Twitter’s initial public offering finally goes live. Plenty of people will be eager to see what happens to the share price when Twitter goes public and is properly valued for the first time. And yet others will remember the Facebook debacle where the share price plunged almost immediately. Will the Twitter IPO go the same way?

Putting a value on a social media site

Twitter and Facebook are two very different sites, although they do share one main feature – both are social media sites. Twitter uses brevity to get its point across, the famous 140 character tweets being a staple of its appearance from the beginning. Facebook is a little more involved, with plenty of features in place and new ones appearing almost every day. Of course, many of those features have met with controversy – something Twitter has largely avoided for the time being at least.

But in November the two networks will share something else – the ability to trade shares. This is arguably the point at which Facebook started to hit some serious problems, so could the same be the case for Twitter? It would seem unlikely that the whole process would be smooth, although the powers that be at Twitter should have learned from the dramas that surrounded the Facebook IPO. It doesn’t mean they will be prevented from making many of the same mistakes, but you never know what might happen.

No profits yet

The main thing to remember if you are keen on getting involved and buying shares in Twitter is that this is a company without a profit. Much like Facebook, it is seeking to monetize its users and the many tweets that are sent and received every day. It has already managed to double its revenue on a yearly basis, so this is a good figure to encourage us to look ahead. What might happen in a year or two – or five – from now? Will those revenues still be doubling?

Essentially the idea of investing in Twitter is something of a gamble. Any purchase of shares is a gamble of sorts, but some are clearly more of a gamble than others. A company which has yet to turn a profit would seem to be in the riskier category, but it may also pay off with richer rewards in the long term.

It remains to be seen whether Twitter can avoid the fiasco that saw the value of Facebook’s shares nosedive early on. While many people will be watching to see how their shares perform, others will inevitably be waiting for disaster to strike. When it comes to IPOs for social media networks, this seems to be the way forward. Facebook was definitely a cautionary tale, so it will be interesting to see whether Twitter will learn from the mistakes and dramas that took place then. What do you think – will this be memorable for the right or wrong reasons?