Twitter IPO Shows It's All Just Transaction Processing

NEW YORK (TheStreet) -- The market battle between Nasdaq and the NYSE is looking more and more like one between Visa (V) and MasterCard (MC).

First, because it seems Twitter chose to become TWTR on the NYSE due to the reliable computerized trading services that exchange provides.

Second, because the exchange is all going to be run out of Atlanta anyway.

Twitter revealed its exchange choice in an amended S-1it filed with the Securities and Exchange Commission Tuesday.

Twitter's IPO process is said to be an "anti-Facebook" one, in that it's going with a traditional process led by Goldman Sachs, listing on the older exchange, and expecting to price its shares to sell quickly, then rise immediately in value. Facebook ( FB) shares, of course, fell in the days after opening and have only recently gone above the IPO price.

Lots of big institutions are listed among Twitter's shareholders. JPMorgan funds own more than 10% of the company. Rivsi Traverse has a stake of 17.9%. Venture capitalists Union Square Ventures, Spark Capital and Benchmark Capital Partners all have more than 5% each.

But when looking at the financial statements, this is also anti-Facebook in that it is a dead money loser. Twitter is showing a loss of $133 million on revenue of $422 million for the first nine months of 2013, against a loss of $70.7 million on revenue of $204.7 million for the same period a year earlier.

The company's research expenses more than doubled over the period to nearly $200 million, and its marketing costs went from less than $58 million to almost $140 million. It did manage to show operating cash flow of almost $4.27 million this year, however.

It was the computer glitches marking the Facebook IPO, the failure to match buyers and sellers for hours, that are said to be at the heart of Twitter's choice of the NYSE. It shows that the exchanges are really just transaction processors.

So it's fitting that before the Twitter IPO process is completed, around the middle of next month, that the NYSE itself will be owned by an Atlanta transaction processor, InterContinental Exchange ( ICE), which is based just a few miles up I-285 from credit card processor First Data. That deal is due to be complete on Nov. 4.

ICE was able to buy the Big Board because commodities and futures markets now offer more action, more trading volume and more transaction processing capability than traditional stocks. Stocks like Twitter get the headlines, but it is futures markets that have the volume.

An exchange, in the end, is just like any other transaction processing business. The quality of the computer services it provides determines its financial fate, and the volume of the transactions it processes define its finances.

That's what people are looking at with Twitter as well, transaction volume. The company says it now has more than 200 million active users creating more than 500 million "tweets" per day. While it began supporting just the 140 characters of a cell phone's SMS message, many tweets now incorporate pictures and video.

There's little technical difference from processing tweets and moving money around, whether the data represents your desire for coffee, your purchase at a store or a big block of stock. It all needs to be handled reliably, in real time and at scale.

So the final irony in all this is that, after its IPO is completed, Twitter will technically have the capital base to buy the exchange it is listing on. ICE is paying $8.2 billion for the NYSE, and the Twitter IPO is expected to raise about $15 billion.

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.

Dana Blankenhorn has been a business journalist since 1978, and a tech reporter since 1982. His specialty has been getting to the future ahead of the crowd, then leaving before success arrived. That meant covering the Internet in 1985, e-commerce in 1994, the Internet of Things in 2005, open source in 2005 and, since 2010, renewable energy. He has written for every medium from newspapers and magazines to Web sites, from books to blogs. He still seeks tomorrow from his Craftsman home in Atlanta.

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