Analysis: Twitter may kickstart consumer-tech IPO train

Published September 14, 2013
File photo dated September 11, 2013 shows the logo of the social networking website 'Twitter' displayed on a computer screen in London. — AFP Photo
File photo dated September 11, 2013 shows the logo of the social networking website 'Twitter' displayed on a computer screen in London. — AFP Photo

Since Facebook Inc's messy initial public offering more than a year ago, the buzz in technology investment has mostly surrounded companies serving businesses rather than consumers - a situation Twitter's imminent debut could help reverse.

From accommodation service Airbnb and storage site Dropbox, to limo-providers Uber, a clutch of hot Silicon Valley names that have steered clear of the markets may now gravitate back if Twitter helps revive investor interest in consumer apps and dotcoms.

That would mark a shift from the status quo since Facebook made its debut to much fanfare in May 2012, only to swiftly fall below its $38 IPO price and stay there for over a year. As daily deal promoter Groupon Inc and online game maker Zynga Inc also wilted, enterprise companies like Workday Inc - a human resources software provider - became de facto market darlings.

Now Twitter is leading by example, choosing to go public for some of the same reasons that will encourage its peers: buoyant US markets and financial backers sitting on potentially huge but unrealized paper gains.

Assuming a successful showing, sentiment "will become better balanced" between enterprise and consumer companies, says George Zachary, a partner at Charles River Ventures and an early investor in Twitter. Improving confidence about their finances and rising employment among consumers should help too.

"A strong rebound in the economy will allow people to put more margin into buying consumer Internet companies," Zachary said.

Already, some financial advisers, including Alan Haft of Kelly Haft Financial in Irvine, California, say they have received calls from clients interested in buying Twitter stock. Twitter announced its intentions to go public on Thursday.

Most of the clients on the phone had invested in the IPO of Facebook, a stock that is now at $44 after a months-long rally.

"Now that Facebook has reared its positive side, people are interested," Haft said. "The tech desire is back in vogue."

If Twitter floats soon, it may be able to get in ahead of Chinese e-commerce giant Alibaba, another keenly anticipated IPO expected to raise more than $15 billion this year.

"Twitter isn't as far along its growth path as Facebook was at its IPO, and that's going to excite the market," said Chris Baggini, portfolio manager at Turner Investments, who bought Facebook and is planning on buying Twitter.

Waiting in the wings

For over a year, software and cloud-based companies hogged the limelight, as investors bet on a fundamental transformation occurring across the business world - the move to the cloud, as remote networks and storage are known.

Names like Tableau Software, Marketo, and in particular Workday, took center stage, despite their more prosaic businesses: business intelligence, marketing software and human-resources software, respectively.

Tableau priced at $31 in May and is now trading north of $70; Marketo priced at $13 in May and is now trading north of $30; and Workday priced at $28 in October and is now trading in the high $70s.

That marked a strong contrast from Facebook, whose poor post-IPO performance lingers in investors' memories.

"You may find public market investors being really cautious about double-digit valuation IPOs" as a result, said Jeremy Levine, a partner at Bessemer Venture Partners, referring to lingering skittishness about buying into outsized IPOs.

A growing number of venture-backed companies, including SurveyMonkey, Eventbrite, and Wordpress-publisher Automattic, have chosen to raise money over the past year from backers such as hedge funds and mutual funds rather than tap public markets.

Twitter in 2011 arranged a $400 million funding round that valued the company at $8 billion. Today, venture capitalists say it could go public at as much as a $15 billion valuation.

But a strong showing from its IPO could spur businesses such as Uber, Airbnb and Dropbox, all considered ripe IPO candidates for 2014, to rethink their options.

"All of them could go tomorrow if they were organizationally ready," said Bessemer's Levine. He declined to comment on his portfolio company Pinterest, the online bulletin board that is also considered another hot IPO prospect for next year.

The benefits could extend to broader groups of companies, including any company that can tap into the growing tendency to engage with the Internet over smartphones rather than personal computers.

"What is exciting to investors is companies that are riding this post PC trend," said Rich Wong, a partner at Accel. "Twitter is very much a personification of that." Earlier this week, Twitter announced it had bought mobile-ad exchange MoPub, one of Wong's portfolio companies.

Other private companies riding that trend include mobile-payments company Square and event-ticketing service Eventbrite. Gilt Groupe, which runs flash sales online, is also a contender.

Some venture capitalists see a boon to any technology company considering going private.

"I look at any big, successful tech IPO as a net positive," said Kevin Spain, general partner at Emergence Capital Partners, which backs Box, an enterprise-oriented online storage service.

"Generally that has a bit of a spillover effect into all parts of the industry."

But that outlook comes with a warning. "The opposite is true as well," he said. "If tech companies falter, it takes a bit of a shine off the market."

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