It wasn’t that long ago that we watched with wonder as social media went public with Facebook’s initial public offering. For a moment, as Facebook stock plummeted, many shook their heads and declared the moment a failure for the company and for the future of social media companies.
Ironically, Twitter users were the most skeptical — 22 percent of tweets about Facebook’s IPO declared the stock overhyped or overpriced. But now, it’s Twitter’s turn to face the very same skepticism and animosity.
The company, which will turn 8 years old on March 21, revealed last year — via Tweet, of course — that it was about to go public. On Oct. 3, the company filed its IPO prospectus and released information to the public so that consumers and potential stock-buyers can learn about the company’s value in the Form S-1. It boils down to this: Soon, you could buy yourself your very own piece of Twitter.
The concern that many Twitter users have with the company’s decision to sell out is just that — they worry it might be selling out to the zeitgeist of the public, which doesn’t have any idea what to actually do with Twitter. Unlike Facebook, where buying shares doesn’t give you any say in the management of the company, Twitter’s shares are conventional, meaning the biggest investors might have a very real influence over what Twitter will look like. But Twitter users don’t need to fear, as the company seems to be sticking to its democratic guns.
The idea that shareholders’ opinions matter is fundamental to Twitter, which has been a tool for decentralized journalism, a driver of public organization and protest and an outlet for the opinions of many. Though its management is unlikely to change, there is at least an indication that Twitter is flexible. Of the new Twitter management, Michael Hiltzik of the Los Angeles Times wrote, “Its talented CEO, Dick Costolo, won’t be cemented in place, unlike Facebook’s Mark Zuckerberg, who can’t be dislodged even with nuclear weaponry.” The possibility for change might intimidate users, but it’s actually a good thing. If Twitter can change as the world changes, it might be able to stay relevant, unlike other social media skeletons — #Myspace.
Even on the legal side, Twitter is upping the honesty game. While commentators have assailed Twitter for using confidential filings, the documents have finally been released, and it turns out that the company didn’t have much to hide. The different documents are 86 percent similar, while Google and Facebook, who also used confidential filings, made more significant changes in between drafts of their S-1s. This should be read as an indication that the company is trying to give buyers a very real view of itself and is therefore aiming to attract more realistic investments than has Facebook. That decreases the likelihood of a Facebook-esque stock crash and may even maintain faith in Twitter as it prepares for this big change. That could just be the key to the company’s sustainability.
In recent years, the pattern for S-1s has been to make them trendy. These documents, which used to be strictly legal material, have been increasingly about advertising and sales technique. Google broke the ground with language directed not just at lawyers and accountants, but also to the public. The company’s document included headings like the somewhat ironic “Don’t Be Evil” and the Big Brother-esque “Making The World A Better Place.” I’m sorry, Google. I hope you aren’t reading this.
On the other hand, Twitter only indulged in this temptation a little bit. While it did have a we-can-change-the-world tone, as it mentioned the importance of Tweets to the 2011 Japanese tsunami and a Tweet from Abbottabad that came hours before any traditional media source commented on the raid on Osama bin Laden’s compound, Twitter’s plain-English section for future shareholders adheres to its value of brevity. It is signed with the impersonal “@twitter” and comes in at only 135 words. In many ways, Twitter is right to call these examples to mind. The value of the company isn’t just its many users or its corporate structure but that it has served as a platform for truly world-changing content. That is unlikely to change whether the company is public or private — people still want to get their ideas out there. A lack of focus from Twitter on advertising itself might also be a boon for users. More subtle techniques are, frankly, less annoying.
In terms of its financial value, Twitter is having a few problems — but at least the company is being honest. While in their S-1 documents many companies — Google and Zynga, for example — use complex accounting techniques or try to hide risk factors, Twitter’s own are refreshingly straightforward. The accounting has been lauded as honest, and the document includes 32 pages of potential risk factors for buyers, compared to just 22 in Facebook’s own. While this isn’t Twitter’s typical brevity, it’s something far more valuable: increased objectivity, which ties back to consumer confidence and, ultimately, hope that Twitter will be a long-lasting institution.
Objectivity is not where the contrast between the companies ends. Facebook and Twitter are coming out to the market on very different terms. In fact, aside from their large followings and being part of the same industry, there’s not that much that’s similar about the two.
Facebook makes about $3.7 billion, while Twitter’s revenue is merely $317 million. And while Facebook’s net income is about $1 billion, Twitter is actually losing money, $74 million to be precise. Will the increased influence of Twitter users be able to reverse this trend? Perhaps there will be a correlation, but causation is unlikely. If Twitter turns profitable it will have to be because of a better business model and restructuring from within. Or perhaps the problem will self-correct as Twitter user numbers and revenue continue to trend upward. Either way, this is a tenuous space for Twitter. If it keeps having losses, it might not stick around — whether or not the public supports it.
The more pressing question is this: Why would Twitter even go public if it’s suffering losses? Maybe the increased liquidity will allow it to relieve some of the pressure that must be coming from older invested capital, though many have presumed that Twitter has access to private capital. Maybe insiders are just ready to cash out, or maybe the private capital stash is actually low. After all, Twitter’s last round of financing occurred in 2011. This might be a necessary step to keep the tweeting bird flying.
Like it or not, Twitter is coming to you, brevity and honesty intact, even though it has shown the public some of its rather pressing weaknesses. The question now is just whether or not the public is ready to buy in, and if Twitter’s core values will survive the transition. I suspect they will.
Lauren Sukin ’16 is a sophomore concentrating in political science and literary arts.
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