Facebook's 'Kid Brother' Twitter Is Ready for the IPO Spotlight

NEW YORK (TheStreet) -- CNBC debuted its excellent documentary on Twitter called "Twitter Revolution" earlier this week. While Twitter CEO, Dick Costolo, didn't reveal his intentions to host Carl Quintanilla on when the company would IPO, I suspect it will be sometime before the end of this year.

And, when it happens, it will be big.

Why will Twitter go public?

With the solid Q2 earnings call of Facebook ( FB)a few weeks ago, any stock that is social- or mobile-related is on fire.

Facebook is up 44% since the earnings. Yelp ( YELP), Zillow ( Z) and LinkedIn ( LNKD) have all exploded as well.

As I said in my column here last week, the good Facebook earnings woke up Wall Street to the two key facts that (1) growth in mobile is accelerating and (2) you can make a lot of money selling ads in mobile.

After more than a year, Facebook is back above its IPO price. It is finally getting big institutional buyers to believe in its model again and the power of its platform.

All that is good for all mobile and social stocks and it's why they are smoking.

What's more, Facebook delivered those numbers in the second quarter -- not the fourth quarter. For any ad-based business, the third and then fourth quarters should be the strongest quarters. So, we are likely moving into a period this fall where Wall Street analysts will continue to take up their estimates for the sector.

Twitter really sits at the intersection of social and mobile. Although it's smaller than Facebook, it was arguably a mobile company from day one of its life, while Facebook had to struggle to make the shift from web to now mobile.

So, Twitter is ready for its IPO spotlight, especially now that all the financial world seems ready to sit up and take notice.

In past years, Twitter has seemed like the kid brother to Facebook. It was younger. It revenues was smaller. It just didn't seem to get talked about as much.

But the company has really come into its own in the last two years. It has owned live television events and programming, as well as becoming a go to service for instant access to information. The old "fail whale" where the service periodically seized up is now a thing of the past.

Most importantly for investors though, Twitter advertisers are starting to line up to get access to the users.

We don't know yet what Twitter's revenue will be this year. That will only be revealed once it files its S-1 document with the Securities and Exchange Commission. There has been chatter for more than a year now that Twitter was expecting to do $1 billion in revenue in 2013.

My guess is that they'll probably handily exceed that estimate given the momentum in the space. But let's assume they can do $1 billion in sales this year (which would put them a little behind LinkedIn in terms of their size of sales.)

The biggest mobile stocks like Facebook get 15 times its revenue. The smaller cap mobile companies like Yelp get 30 times its sales. And LinkedIn is getting the low 20s times its revenue in terms of their market capitalization.

Twitter is just starting to turn the tap on sales. So my guess is that it will get around a 25 times sales multiple when it has its IPO. It won't be quite as high as Yelp, but it will still be high as investors assume that this revenue will rise significantly in the next couple of years.

That leads you to an IPO valuation of around $25 billion.

Is it too high? Will Twitter experience a similar lukewarm response from Wall Street as Facebook did last year? I don't think so.

Just like older siblings "break in" in the parents for the younger siblings, we're likely going to see institutional investors who are less skeptical of Twitter's growth plans than they were with Facebook last year.

However, it's important to remember that this isn't a Facebook or Twitter story as mobile grows. It's a Facebook and Twitter story.

Advertisers will be increasing allocating their spending to mobile and social. Facebook and Twitter will be happy to take orders as the expense of former search dollars and old-time display dollars.

If Twitter showed it was ready for its CNBC close-up this week, just wait for the IPO.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Eric Jackson is founder and Managing Member of Ironfire Capital and the general partner and investment manager of Ironfire Capital US Fund LP and Ironfire Capital International Fund, Ltd. In January 2007, Jackson started the world's first Internet-based campaign to increase shareholder value at Yahoo!, leading to a change in CEOs in 2007. He also spoke out in favor of Yahoo!'s accepting Microsoft's buyout offer in 2008. Global Proxy Watch named Jackson as one of its 10 "Stars" who positively influenced international corporate governance and shareowner value in 2007.

Prior to founding Ironfire Capital, Jackson was President and CEO of Jackson Leadership Systems, Inc., a leadership, strategy, and governance consulting firm. He completed his Ph.D. in the Management Department at the Columbia University Graduate School of Business in New York, with a specialization in Strategic Management and Corporate Governance, and holds a B.A. from McGill University.

He was previously Vice President of Strategy and Business Development at VoiceGenie Technologies, a software firm now owned by Alcatel-Lucent. In 2004, Jackson founded the Young Patrons' Circle at the Royal Ontario Museum in Toronto, which is now the second-largest social and philanthropic group of its kind in North America, raising $500,000 annually for the museum. You can follow Jackson on Twitter at www.twitter.com/ericjackson or @ericjackson.

You can contact Eric by emailing him at eric.jackson@thestreet.com.

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