Investing Blog

Finance Blogs » Investing Blog » Twitter and the new IPO process

Twitter and the new IPO process

By Sheyna Steiner ·
Tuesday, September 17, 2013
Posted: 7 pm ET

As you may have heard, Twitter is going public. The social media company tweeted last week that it had filed the first papers with the Securities and Exchange Commission, or SEC, on the way toward their initial public offering, or IPO.

Twitter is filing its IPO paperwork under a provision in the Jobs Act, which allows companies with revenues less than $1 billion to confidentially submit a draft registration statement to the SEC. The small companies are called emerging growth in the Jobs Act, and they have to publicly file their registration 21 days before the IPO roadshow begins. The roadshow is when company executives visit bigwigs and institutional investors to drum up interest in the company and nicely ask for their money.

The Jobs Act gives emerging-growth companies a break on some auditing and accounting standards as well as post-IPO disclosure requirements.

"Twitter knew that by filing under the Jobs Act, that they were going to provide less information about the current revenue or else they would be undervalued. They need the speculation thrown into the mix and a little bit of mystery to ensure that they weren't judged that closely to Facebook based on current numbers," says Ryan Cohn, vice president of social and digital operations at Sachs Media Group in Tallahassee, Fla.

Comparisons to the Facebook filing are inevitable, but looking at the two social media companies side by side may do the smaller company no favors when their finances and future plans for revenue are revealed. Twitter is thought to be worth $10.5 billion, according to a blog post from last week, "Twitter set to go public."

"Facebook, between large corporate advertising, API and a variety of other products was already so much farther along in the monetization process when they IPO'd," says Cohn. API means application programming interface, a program that lets applications communicate with each other.

"And (Facebook) had so much more of an ongoing revenue base, it was easier to predict their value. Twitter, on the other hand, has only started monetizing really this year," he says.

Despite its short track record, Twitter's IPO may be a success. If it is, it could clear the way for more social media companies.

"Up to now, there has been a significant lack of private equity investment in social media companies. If the Twitter IPO ends up successful and Facebook maintains upward momentum, I anticipate a number of private equity firms getting into the arena, which will lead to more and more future IPOs," says Cohn.

What do you think about the prospective Twitter IPO?

Follow me on Twitter: @SheynaSteiner.

Senior investing reporter Sheyna Steiner is a co-author of "Future Millionaires' Guidebook," an e-book written by Bankrate editors and reporters. It's available at all the major e-book retailers.

Bankrate wants to hear from you and encourages comments. We ask that you stay on topic, respect other people's opinions, and avoid profanity, offensive statements, and illegal content. Please keep in mind that we reserve the right to (but are not obligated to) edit or delete your comments. Please avoid posting private or confidential information, and also keep in mind that anything you post may be disclosed, published, transmitted or reused.

By submitting a post, you agree to be bound by Bankrate's terms of use. Please refer to Bankrate's privacy policy for more information regarding Bankrate's privacy practices.