Perspective: Twitter's success opens up IPO pipeline

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

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The company known for its 140-character messages turned investors' attention away from the fact that it had yet to make a profit and instead focused on how it's changing the way that ordinary people, along with celebrities and heads of state, communicate.

Company executives, wearing business suits to meet with businesspeople, stressed that while Twitter hasn't generated a profit, it is looking toward advertising and its mobile base to clear that hurdle. Twitter sells ads that appear as tweets in users' tweet streams. The company needs to increase that advertising, while smoothly tying it with its mobile base -- and it must do so without angering users.

There are other revenue options for Twitter, such as selling data to other companies. Many businesses would probably pay good money to get statistics on the things people are tweeting about them and their products.

Twitter also started with a low initial price range of $17-$20 a share, but increased the price range twice in the week leading up to its IPO. Its initial offering price was $26, which jumped to $45 a share soon after trading started.

And with that, the landscape changed and social media companies started feeling more confident about attracting investors.

Last week, Zulily, a hot daily deal e-commerce site for moms and kids, rode its own investor enthusiasm and rose more than 70% in its market debut on Nov. 15.

It's a good time for Twitter's success to send ripples across the financial pond. Renaissance Capital, an investment bank, reported that there have been more than 200 IPO launches in the U.S. this year -- 41 of them from the tech sector. In fact, the technology industry has had the third highest number of IPOs in 2013, coming in behind healthcare, with 50, and financial services, with 43.

The year's overall IPO count is the third highest annual count since 2000, according to Renaissance Capital.

Other social media companies are expected to line up to launch their own IPOs.

They include Dropbox, which offers a cloud-based service for sharing and storing photos, videos and documents; music-streaming service Spotify; and Pinterest, a pinboard-style photo-sharing site. Others include Snapchat, a photo messaging startup that reportedly turned down a multibillion-dollar offer to be acquired by Facebook; Flipboard, a social networking aggregator; and Scribd, whose goal is to be the world's largest digital library.

The IPO pipeline is opening up, and companies that had been holding back and waiting for the Facebook cloud to pass appear more willing to make the move. However, we're not likely to see an IPO free-for-all. There's still a segment of the population, mostly the older generation, that has not been so quick to take to social media and might not see the benefits -- either socially or as an investment.

To attract investors, social networks, and the broader base of tech companies in general, need to make sure they're not one-trick ponies, and that they can offer something inventive, maintain an engaged user base, and drive traffic and revenue.

Becoming a household name, like Twitter, doesn't hurt, either.

Analysts agree that the prospects for social media companies in the stock market are more hopeful. But whether that enthusiasm can be sustained as more companies join the fray is yet to be seen.

"Twitter wasn't based on financial fundamentals but hopes and wishes," said Rob Enderle, an analyst at Enderle Group. "Yet it created a feeding frenzy for these stocks.... The market appears ready for more."

This article, "Twitter's Success Opens Up IPO Pipeline," was originally published on Computerworld.com.

Sharon Gaudin covers the Internet and Web 2.0, emerging technologies, and desktop and laptop chips for Computerworld. Follow Sharon on Twitter, at @sgaudin, and on Google+, or subscribe to Sharon's RSS feed . Her email address is sgaudin@computerworld.com.

See more by Sharon Gaudin on Computerworld.com.

Copyright © 2013 IDG Communications, Inc.

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