Twitter CEO Dick Costolo. (Image credit: Getty Images via @daylife)As Twitter rumbles down the home stretch and across the IPO finish line, there remain plenty of legitimate questions about its business model, competitive position and staying power. But you wouldn't know that from the events of the last two weeks.
In its initial pricing of the offer, Twitter struck a note of caution, pegging the value of a share between $17 and $20. That made for an attractive discount vis-à-vis its social media rivals, especially Facebook . But as its roadshow took on the feel of a victory lap, the company and its bankers revised that range upward by a whopping $25.
Now Twitter has deemed even that too conservative, setting the opening price at $26. The participants in our IPO pool, including FORBES staff and readers, expect the stock to close its first day of trading at $31; the consensus guess in another online poll is closer to $40.
Some of this upward momentum is no doubt the result of expert demand-management by Goldman Sachs, Morgan Stanley and JP Morgan Chase & Co. - some, but not all. The more closely the investing community examines Twitter, it seems, the more it likes what it sees. The questions remain, but Wall Street thinks it knows the answers, and they're more than satisfactory.
Buying Twitter at a multiple that makes it more expensive than Google , Facebook or LinkedIn represents a bet that a number of big things will go right in coming months and years. These are the big ones.
More people will start using Twitter in North America. If there's one good reason to be skeptical, it's that Twitter's membership growth in its most important and lucrative market, its home territory, was effectively nil in the most recent quarter - a mere 1 million monthly active users added. With 53 million, it's at a significant disadvantage when competing with Facebook and Yahoo for the business of the biggest marketers, for whom scale is paramount. Twitter is working on all sorts of ways to boost user growth, including mimicking the visually rich look of Instagram and Tumblr, partnering with TV networks and sports leagues to get more exclusive content on the platform and integrating Twitter into TV remotes and set-top boxes.
Advertisers will pay more to reach the people who aren't in North America. As it is, each U.S. user generates about nine times as much in ad revenue as a user in another country - even though other countries are where most of the user growth is coming from. You could look at this as a problem or as an opportunity; for now, at least, the market seems to be taking the latter view.
Marketers will decide that Twitter advertising works. Just because Twitter is already doing about $600 million in annual revenues doesn't mean the big brands of the world are convinced it's money well spent. According to Forrester, many still think they can get better value by spending their dollars on LinkedIn or YouTube. The good news here, according to Adobe, is that Twitter can point to a 300% year-over-year jump in average revenue generated by a site visit from a user who clicked on a link in a tweet.
Vine will be worth something - maybe a lot. The short-form video service, acquired by Twitter just over a year ago, doesn't have any revenues yet and most analysts aren't ascribing much if any value to it. But according to BTIG's Rich Greenfield, Twitter co-founder Jack Dorsey believes it will one day be worth more than the entire rest of the company. Brands are already flocking to it, and the greater visibility of Vines in the main Twitter timeline will only accelerate that.
Users will tolerate substantially more advertising on the service than they do today. Unlike Facebook, Twitter doesn't sell 'ads' per se, only the ability to promote selected tweets, accounts and hashtags. That approach has worked nicely; it's amazing how many users don't realize there's already advertising on the platform. But the move to emphasize photos and videos was a sign that Twitter knows the advertising needs to be less subtle. Facebook recently decided it can't inflict more ads than it already does on users without sending some of them running away. Twitter will hit that point eventually, too - but it's a long way off.
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