Twitter is planning to join Wall Street with an initial public offering, but being responsible to shareholders means the microblog will have to polish its website to translate its user base into more revenue.
The tech titan proved its influence on the global dialogue by announcing that it had filed S-1 papers with the Securities and Exchange Commission (SEC) in a post on its own website at 5 p.m. EDT, on Thursday, after the stock market had closed.
We've confidentially submitted an S-1 to the SEC for a planned IPO. This Tweet does not constitute an offer of any securities for sale.— Twitter (@twitter) September 12, 2013
That tweet heard round the world benefited funds that already own stakes in Twitter, indicating shareholders are ready to take a bet on the Web company. Stocks of firms that own Twitter, including GSV Capital and Firsthand Technology Value Fund rose during Friday trading following the Twitter announcement, according to CNNMoney. When Twitter gets public shareholders they will want the company to prove how it can make a profit, which is a big challenge for a social media company, said Bob Ackerman, managing director of Allegis Capital."In social media you are talking about new paradigms that need to be developed and then explained to the market," Ackerman said. "That is going to be their biggest challenge."
The latest valuation of the company is an estimated $14 billion, according to GigaOm. To prove that value to shareholders Twitter will have to monetize users with new services, said Brian Blau, research director on consumer technologies at Gartner, a technology research firm.
After going public in May 2012, Facebook faced intense pressure from investors, forcing Facebook to develop its revenue strategy, and the stock slumped before rising above its IPO price in July of this year. Twitter will likely go through the same process Facebook did in 2012 when it added features to generate money from its website, Blau said.
"For Twitter to grow up more they need to more look like a major consumer platform. Companies like Google have lots of different products and services. That's where Twitter wants to go, and that's where Facebook has been going," Blau said.
Other new features on Twitter may include e-commerce features that allow direct retail sales on the website, Blau said. In an attempt to generate e-commerce revenue Facebook rolled out Facebook Gifts in 2012 , which allowed purchases of gifts for other users on the website. That feature is no longer active on Facebook but Twitter may try something similar, he explained.
"You can look at Facebook as a precursor to what has happened at Twitter," Blau said. "The rivalry between Facebook and Twitter was already intense, and this steps it up a notch."
Twitter's acquisitions indicate how it is planning to branch out to generate revenue. It isworking with multiple sectors including mobile companies, the gaming industry, television and even retailers, Blau said. A list of Twitter's notable acquisitions can be found on Time.
Twitter may be able to demonstrate value to investors better than Facebook did in 2012 because Twitter has such a strong presence on mobile devices, Blau said. On Monday Twitter purchased MoPub, a mobile-focused advertising exchange system that allows advertisers to bid for ad space on mobile apps.
Recent acquisitions by Twitter including Vine or Twitter Music could be used to generate advertising, or the website could force users to pay to access them, Blau said.
These changes may be coming soon. Now that Twitter has announced its plans to go public the company could make an IPO as early as December, Ackerman said. A provision in the 2012 JOBS Act allowed Twitter to file confidentially for an IPO with the government. That means the company can keep its SEC filings secret until 21 days before the company seeks out investors. Once that information about the company is made public, Twitter could benefit from going public in 2013, rather than wait until 2014 and allow public excitement to fade, Ackerman said.