Twitter’s sensible IPO strategy

By September 27, 2013Exits

NOTE: I wrote the post below a couple of weeks back but failed to hit the publish button. That was before Twitter filed their S1 with a valuation of c$15bn. Whilst that’s not an outrageous increase from $10.5bn from what we know of Twitter’s finances it seems pretty spicy from a multiples perspective – just north of key comps Facebook, LinkedIn and Yelp on a revenue basis at 15x the 2014 estimate of $1bn, and 65x estimated 2014 EBITDA (Facebook 36x, LinkedIn 159x). This is definitely pushing the limits of ‘sensible’ as described below.

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A couple of weeks back Twitter acquired a mobile advertising company called Mopub for around $350m in Twitter shares. Buying a company with shares requires that you place a value on those shares, and hence on the company. The good news is that Twitter gave themselves a relatively conservative valuation of $10.5bn, which is about 15% up from the valuation that Blackrock paid to buy into the company at the beginning of the year.

This is good news because it implies they intend to keep the IPO price reasonable and allow investors to make good money as the stock appreciates in the weeks and months after the listing date. You can think of this as adopting the LinkedIn strategy rather than the Facebook strategy for going public.

There are a number of European companies that are of a size where they could go public on the London market – I’m thinking of companies like Zoopla, Wonga, Just-Eat, and Mindcandy. When they do go public I hope they follow Twitter and LinkedIn and so the shares trade up and the new investors have a happy time. That way the next IPO will be easier and the one after that will be easier again. If the opposite happens and the new investors lose money as they did when Ocado listed then the markets will shut again for tech companies and exit markets will remain more difficult here than they should be. Worse still we will be less likely to get the large independent local tech powerhouses we need to really drive the local ecosystem forward.