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Perspective: Twitter's success opens up IPO pipeline

Wall Street, social networks sit up and pay attention as Twitter turns market around

November 21, 2013 06:30 AM ET

Computerworld - When Twitter successfully launched its initial public offering on Nov. 7, filling its coffers and making instant billionaires of its executives and early investors, its Wall Street triumph eclipsed Facebook's troubled launch in 2012.

Twitter's IPO could be a sign that the market is ripe for IPOs by other social networks, and by tech companies in general that held back after Facebook's debacle. Despite the fact that it has never turned a profit, Twitter is spurring other companies to make the fateful leap to Wall Street. (Related story: "By the Numbers: Twitter vs. Facebook IPOs")

"I think [Twitter's] successful IPO speaks volumes about the state of the social networking landscape. It's healthy and growing," said Brian Blau, a Gartner analyst who is watching King.com, a social gaming site, in the run-up to its IPO. "That said, social networking companies can't stand still, and they need to diversify to make sure they can bring in advertisers, brands and businesses."

What happened with Facebook

This market see-saw began in the spring of 2012.

In the run-up to Facebook's much ballyhooed initial public offering, industry and financial analysts had great expectations that the world's largest social network would pull in investors eager to capitalize on the social media craze.

Facebook CEO and co-founder Mark Zuckerberg met with traditional button-down investors wearing his trademark hoodie and T-shirt. Some wondered aloud if the twentysomething executive had what it takes to run a publicly traded company.

Facebook also had to confront a few obstacles close to its opening day. The social network admitted that it was not monetizing its growing mobile user base as it needed to. Then days before the IPO launch, General Motors, one of the country's largest advertisers, pulled out of a $10 million advertising deal with Facebook, saying its paid ads on the social network were ineffective in driving business.

However, neither of those problems stopped Facebook executives from increasing the price range of the company's stock from $29-$34 per share to $34-$38 per share just days before its IPO.

On May 18, 2012, Facebook went public and, despite trading glitches and a 30-minute delay in the start of trading, it opened well. The share price quickly rose 11%, but it began to slide as the day wore on.

Facebook closed at $38.23 a share, barely maintaining its $38 opening price. It did not meet the exuberant expectations of investors who envisioned the stock rocketing to $50, $60 or even $90 a share on its opening day. Facebook's stock price continued to decline for months, hitting its low point of $17.55 per share in September 2012.

It took more than a year for Facebook's stock to return to its opening price of $38 per share.

Twitter enters the fray

It was a tough lesson for other social media companies that were considering going public. If the world's largest social network -- a globally recognized name -- could stumble on its IPO, what would go wrong for them?

Then Twitter stepped onto the stage.

This fall, the microblogging company -- which had grown so popular that astronauts were tweeting from space, President Obama was tweeting from the White House and people around the world were tweeting to inspire political change -- announced that it planned to go public.

Other companies -- startups and social media players -- snapped to attention and watched. Would Twitter's IPO suffer because of the increased scrutiny that Facebook's trouble brought?



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