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Twitter’s IPO: Boom or Bust?

Twitter’s IPO: Boom or Bust?
Eric Huebner

Less than a year and a half ago, Facebook held its initial public offering in what was considered to be the most widely anticipated tech IPO ever. The IPO was by far the largest in Internet history, reaching a peak market capitalization of over $104 billion.

Contrary to the predictions of stratospheric success promulgated by a host of industry pundits and casual investors, the IPO wasn’t an instant success. The stock lost over a quarter of its value after less than one month on the market and over half its IPO value in the ensuing three months. It wasn’t until after Q2 of 2013 that Facebook stock started to soar and now continues to reach new heights.

Now, the social networking world’s other great titan, Twitter, is looking to follow suit in filing for an IPO, but is hoping for a less rocky turn of events. Currently, many Wall Street analysts are estimating the popular microblogging company to be worth roughly $10 billion. Whether or not this is an accurate number is an entirely different story altogether.

Given the high profile failures of tech sites like Groupon and Zynga, it’s not unreasonable to approach the Twitter IPO with some uncertainty.

There’s no denying that Twitter is currently one of the most dynamic companies. However, that doesn’t mean that it’s necessarily a sound investment. Twitter’s most visible flaw is its corporate structure. Sources quoted by Business Insider state that Twitter got off the ground using engineers that lacked elite talent and that this problem has compounded due to these particular people being promoted to positions of power within the company. In addition, the company’s rapid expansion has ostensibly created something of a communication gap and lack of centralization and focus.

In addition, Twitter’s e-commerce conversion rate is quite low. This rate measures the efficacy of a site’s setup in a commercial sense. Twitter is the not-so-proud owner of a 0.36-0.9% conversion rate, depending on the evaluation process applied. For comparative purposes, Facebook’s conversion rate is between 1.08 and 3.3%.

When these varying aspects are factored in, it seems like Twitter is in for an uphill battle. That isn’t to say that Twitter’s IPO will be a failure or that the company is a bad investment. However, even if the IPO isn’t completely botched like Facebook’s, evidence doesn’t suggest that the ensuing results will be much different.

 

[Sources: CNBC, MarketWatch]

 

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