In an effort to avoid the same sort of out-of-control hype that led to Facebook's disastrous IPO, Twitter has decided it wants a "low-profile" affair, one source tells the New York Post. The company is already failing in that effort. The Post reports that unconfirmed yet highly anticipated Twitter IPO — which has been rumored and anticipated by media outlets for years — has banks are fighting for the chance to get in on the action. Unnamed sources claim that the initial public offering will take place in "early 2014."
Investors put Twitter's worth at around $10 billion, a substantial price tag for a company that brought in just $350 million in revenue in 2012. Although that's nowhere near the outlandish $100 billion IPO valuation Facebook reportedly sought, it's high, and banks are rushing to partner with Twitter on its impending IPO, as the Post explains, because they think it can make them money. But that's exactly what Twitter's trying to avoid with a "low-profile" IPO, per the Post's mysterious source. Getting investors too excited before the IPO date, you see, can further inflate the price. That's what happened with Facebook: Investors were disappointed with a rumored stock price that fell lower than expectations, which only pushed the actual IPO price up further. Twitter doesn't want that kind of inflation, because then, like Facebook, it might debut with a dud.
One way to avoid this sort of investor hype would be to, as DealBook's Jeffrey Goldfarb argued last week, go the way of Google with a modified Dutch auction IPO. "The process used by Google founders Larry Page and Sergey Brin successfully mitigated some of the hype that Facebook couldn’t." he wrote. In such a set-up, investors bid each other down, until a price is agreed upon. Goldfarb explains that such a method is especially prudent in the case of a stock like Twitter, where its "main attraction will be that many others want to buy it."
But that method can backfire, as was seen in the case of the online magazine Salon, which used the Dutch auction method back in 1999. Salon's investors bid the price down to $10.50, which turned out to be too accurate and prevented a "pop" on the first day — the desired effect for new stocks that gives a company momentum and early investors a returns. Twitter, of course, doesn't want that either. "IPO investors should not go into a deal and buy a stock and the very first day show a loss. The market is not used to that sort of thing and has no tolerance for it," said one investor of the Salon botch.
Twitter claims it is willing to leave money on the table, claims the Post's source. But, recall: Facebook used to make claims like that before it had investors to answer to. Now, it's trying to monetize every part of its business, even going so far as to try get Internet service to 4 billion potential new customers. The fact is that an IPO is about making money — and Twitter doesn't really have the option for a "low-profile" launch.