NEW YORK (TheStreet) - Twitter's initial public offering, priced at $26 a share, will flesh out the multi-billion dollar valuation investors are prepared to don on the burgeoning Internet powerhouse. The IPO may also be a subtle way for Twitter's growing number of users and advertisers to understand the strengths and weaknesses of the company's micro-blogging platform.
IPOs, by their very nature, give insight into how investors are prepared to a value a business. Few share listings, however, say something about the actual business that is being sold to public stock investors.
Twitter's share offering is different.
Prospective investors should spend time on Twitter as it goes public to try and better understand what the San Francisco-based company's appeal is and can be for prospective users and advertisers.Twitter, after all, is more of a giant leap forward in the dissemination of news and ideas than it is some major technological breakthrough. Yes, the company is considered a part of the tech sector given its trove of data analytics and the elegance of its novel communication platform. Users are more likely to consider Twitter as part of their daily media, entertainment and news consumption. Advertisers appear to believe Twitter is in an advantaged position when it comes to marketing particular trends like the Super Bowl, a TV finale or an awards show. In that sense, Twitter's IPO is an event that should highlight the platform's appeal to users and advertisers. From my vantage point, the company is succeeding in many ways and failing in others. Twitter as a search product: Twitter is at heart an advertising company, but it does have analytics and search businesses that some analysts believe can be an under-appreciated source of growth in coming years. As of Twitter's share open on Thursday morning, search-ability for information related to Twitter's IPO indicated the company is on the cusp of search-related breakthroughs that would far go beyond Google's (GOOG) offerings. Searching Twitter using the company's ticker -- $ (TWTR) - creates a blur of tweets that makes it so a user looking for a specific piece of information is sifting through a haystack of unconnected information. Hashtags also make Twitter searchable for business and non-business content.
Nevertheless, users who follow a significant amount of Twitter handles that express similar interests may feel information on the network is more immediate and engaging than anything on Google. Sifting through the Twitter's 'Top Tweet' bar in a search for $TWTR related news, reveals interesting pictures of the company's CEO Dick Costolo on the floor of the New York Stock Exchange, in addition to rumors on the company's opening price from floor traders at the exchange. The Top Tweet bar also filters heavily re-tweeted posts by The New York Times, Vanity Fair, Money Magazine and the like, which would also likely show up on a Google search. Already, Twitter appears to be revealing itself as a more powerful search product. It is still hard to find pictures of Twitter's IPO or thoughts on its opening price using Google's search engine. Better yet, users can also engage in a conversation that generates ideas about Twitter's IPO they might not have thought of. By filtering $TWTR related news in the 'People you know,' I get a glimpse into what colleagues in the news media are saying about Twitter's IPO.
Some handles I follow have quotes from key Twitter officials like Jack Dorsey and Dick Costolo. Others have analysis of the company's IPO valuation or anecdotes from their reporting of the company over the years. Done correctly, Twitter is a far more useful search product for real-time information, analysis, conversation and new ideas than what Google's search product offers.
Still, Twitter's search product is very much a work in progress. Summize, a company Twitter bought for $15 million in 2008 to be its search product, isn't the success some might have expected. It's improved markedly over the years, but it still isn't as encompassing as it should be.
Now Summize appears as Twitter's search homepage. I hardly access it independently from my desktop and mobile timeline usage. Does it appeal to Advertisers? Google is virtually guaranteed to make money from each search. Search bars are now littered with tailored ads that are tied by algorithms to Google searches. By contrast, Twitter gets paid about 80 cents for every thousand timeline views -- $2.17 per thousand in the U.S. and just $0.30 internationally - regardless of what users are searching for. My desktop and mobile timelines show few Promoted Tweets or Promoted Accounts where Twitter might be able to monetize a news event like its IPO for specific users. Presumably, an IPO that rose 30% from the high-end of the company's initial range to its pricing on Wednesday evening would have brokerage houses like TD Ameritrade (AMTD), Charles Schwab (SCHW) and E-Trade (ETFC) drooling for retail investor order flow. Wouldn't they consider throwing a big ad budget in trying to build marketing for what is the most highly-anticipated since Facebook's (FB) May 2012 listing? I see virtually no tailored advertising to Twitter's IPO anywhere I look on my timeline, and over 90% of the people I follow and people who follow me are tied to the investment community, in some capacity or another.
Banner ads on my account might have driven solid ad revenue for Twitter, but the company promises far more. The User Benefit Outweighs the Advertiser Benefit: If E-Trade or TD Ameritrade have not gotten a piece of the Twitter's IPO action, users have. For instance, Twitter is making TheStreet money right now.
Articles I've written detailing the numbers behind Twitter's IPO and thoughts for how it will make money generated significant readership from posts on the platform. Other media organizations covering Twitter's IPO are likely to be getting a similar benefit from the company's platform by way of traffic and online ad revenue. I argued in a recent article that Twitter, if it found itself hamstrung to generate growing ad revenue, could probably charge its biggest accounts given the platform generates real economic benefits for some users.
Conclusions: Twitter's IPO date tells me that the company is succeeding as a media and entertainment platform and that its prospects may be underestimated as a search product. The IPO process also tells me Twitter still has a very long way to go in making its wonderful platform appealing to marketers. That presents both an opportunity and a significant risk for investors, who now have bid up the company to a valuation well in excess of $20 billion. -- Written by Antoine Gara in New York Follow @antoinegara
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