Everyone's crowing about how Twitter managed to avoid Facebook's notorious stumbles out of the IPO gate. Unlike Facebook's widely planned public debut last May, Twitter's public debut last week seems to have gone off without a hitch.
Becoming the anti-Facebook seems to be Twitter's strategy, and that's plenty smart as far as the IPO goes. But in the mid to long run, Twitter should be so lucky as to do as well as Facebook.
A winning IPO
The IPO was a clear win for Twitter. The company was able to raise its offering price from an initial range of $17-$20 up to $26 per share, garnering extra cash for the company. And Wall Street and early investors were still thrilled with the stock's opening-day appearance at a whopping $45 per share. (The stock briefly topped $49 and closed Friday at $41.65.)
Compare that to Facebook's glitch-filled debut. After its own last-minute valuation hikes to $38 per share, Facebook's stock price went nowhere on opening day -- when it could be traded at all. And it soon sank below $19, a distressing half of its initial valuation. While insiders did well, early IPO buyers got hammered. Perhaps more importantly, Facebook was left with egg on its face and a withering barrage of criticim in the media.
Facebook has comeback to gain a big lead
But that's not the whole story. Over time, Twitter will be hard pressed to duplicate Facebook's success.
First, there's the sheer scale difference. Facebook was worth $104 billion at its IPO, and is now worth $115.5 billion. Even at its lowest point, Facebook's valuation of less than $38 billion in September of 2012 was much higer than Twitter's current valuation of $22.7 billion. And stock price is only part of the story. Compare Facebook's rising revenue and profits to Twitter's ongoing losses, and the gulf yawns even wider.
The IPO numbers tell another story, as well. While investors may not have been thrilled by the lack of a bounce in Facebook's overpriced debut, the company's pricing strategy meant that it -- not IPO buyers -- earned pretty much all of the money available. Twitter, by contrast, left billions of dollars on the table, where it went to the banks and underwriters and investors who flipped the underpriced stock. That made them happy and seduced the media, but how much good did it actually do for Twitter?
Bad press vs. a big pile of cash?
Now that Facebook's stock has climbed well above the IPO price, the company is sitting pretty, with a huge pile of cash and a fast-growing, profitable business. Despite its successful IPO and legions of fans -- especially in the media -- Twitter still has to prove it can monetize its user base to build a viable business at a scale big enough to justify all that investor confidence.
In other words, it has to show it can do what Facebook already seems to be doing. Like the investors who have bought into the stock, I believe it will. But to succeed, the Twitter will have to emulate Facebook in many ways, not try to be the anti-Facebook.