Twitter’s public debut is yin to Facebook’s yang
By Robert Cyran
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Twitterâs public debut is turning out to be the yin to Facebookâs yang. The initial public offering of Mark Zuckerbergâs social network in 2012 was blowout, capitalistic excess. Twitter has carefully managed expectations. But both are a curious mix of cynicism and belief â redistributed among bankers, backers, executives and prospective investors. Still, when it comes to hyped-up IPOs, everyone seems most comfortable reacting to recent history.
Facebookâs float was an exercise in insiders extracting as much as possible, while surrendering little. Lead underwriter Morgan Stanley priced the stock at an overly generous multiple, and then raised the price and shares sold as mania sucked in the credulous.
Insiders dumped stock â most of the money raised went to them â because uncertainty surrounded the companyâs business model. Growth was falling, and mobile posed a threat. Zuckerberg seemed to care more about his wedding the following day. Super-voting stock meant he could ignore stockholders. The stockâs open on Nasdaq was flubbed, and it quickly lost half its value.
Twitterâs float has been more finely tuned to rewarding new buyers â delaying future wealth removal by insiders. Backers are not selling any stock, so all the money raised furthers Twitterâs ambitions. Thereâs only one class of stock. Growth is accelerating, and mobile devicesâ growth is wind at Twitterâs back.
The retail hype is comparatively muted, as it has less than a quarter of the users Facebook had when it went public. Goldman Sachs low-balled the initial price range, raised it, and the stock priced even higher. Expect a further boost when it begins trading on the New York Stock Exchange.
The differences arenât chance. Facebookâs float accomplished the short-run objective of raising the maximum amount of money for early backers. But it hurt the companyâs reputation, left employees demoralized and persuaded many tech firms to remain private. Time erased the pain, as the company figured out mobile. A year after its debut, the stock hit new highs.
Twitterâs approach more clearly benefits prospective investors. Whether this will be wise for its earlier owners is uncertain. Twitter is unprofitable, so its valuation depends upon future growth and sentiment. If its business unravels or investors sour, its value could slide before longtime backers pull their winnings out â setting up another lesson for the next hot IPO.