Twitter Stock For Sale … Cheap!

The Citizen's Guide to the Future
Oct. 25 2013 2:36 PM

Why Is Twitter Selling Its Stock So Cheap?

Is Twitter overreacting to the bad press that followed Facebook's IPO?
Is Twitter overreacting to the bad press that followed Facebook's IPO?

Photo by Lionel Bonaventure/AFP/Getty Images

When Twitter goes public next month, it will sell its shares for between $17 and $20 apiece, the company announced Thursday. That implies that the company as a whole is worth around $11 billion, depending on how you calculate.

It sounds like a lot for a company that’s losing money. But it’s actually much lower than a lot of market-watchers expected, based on the company’s rapid growth and untapped potential. One early report predicted a share price of $28 to $30 and a valuation topping $15 billion. And some analysts have projected that the valuation could hit $20 billion once trading begins. What gives?

The short answer is that Twitter wants to avoid a public-relations debacle like the one that engulfed Facebook when it set an ambitious share price of $38 in its IPO last year only to see the bottom fall out in the days and weeks that followed. Within four months Facebook’s stock had dipped below $20, and its IPO was widely seen as a cautionary tale.

Advertisement

Was it really, though? Sure, the privileged investors who got in on the ground floor whined about it, because they didn’t get a windfall. And perhaps the drop in the company’s stock ratcheted up the pressure a bit on Facebook to boost its revenue in subsequent earnings reports. But Zuckerberg and co. weathered the backlash and came out the other side a stronger company. Facebook stock is now trading above $50. And by setting the price as high as the market would bear, Facebook maximized the amount of capital it raised from the IPO, which is, after all, sort of the point. (Well, that and enriching the company’s current owners.)

Twitter can’t escape the comparisons to Facebook. But it’s a very different company—more of a media company than a social utility—and a much smaller one at this stage than Facebook was when it went public. In fact, it may never be as big as Facebook. On the bright side, people don’t fear and loathe it like some do Facebook. So if it wants to succeed long-term, it ought to follow its own playbook rather than basing its decisions on what did and didn’t work for Zuckerberg.

Maybe you could argue that lowballing its IPO price is in fact Twitter's way of signaling that it's different than Facebook, and managing expectations. But a modest price bounce on the day of its IPO might make for good press and fuzzy feelings, it's hard to see any concrete upside. At worst, it may suggest that the company’s leaders lack the spine to plug their ears and do what’s in the company’s best interest, bad press be damned. That stubbornness, if anything, is the Zuckerbergian (and Jobs-ian, and Bezos-ian, and Gates-ian) quality that Twitter will most need to emulate if it’s to hold its own in the great, cutthroat tech-business wars for years to come.

Future Tense is a partnership of SlateNew America, and Arizona State University.

Will Oremus is Slate's senior technology writer.

TODAY IN SLATE

Frame Game

Hard Knocks

I was hit by a teacher in an East Texas public school. It taught me nothing.

Republicans Like Scott Walker Are Building Campaigns Around Problems That Don’t Exist

Why Greenland’s “Dark Snow” Should Worry You

If You’re Outraged by the NFL, Follow This Satirical Blowhard on Twitter

The Best Way to Organize Your Fridge

The World

Iran and the U.S. Are Allies

They’re just not ready to admit it yet.

Sports Nut

Giving Up on Goodell

How the NFL lost the trust of its most loyal reporters.

Chief Justice John Roberts Says $1,000 Can’t Buy Influence in Congress. Looks Like He’s Wrong.

Farewell! Emily Bazelon on What She Will Miss About Slate.

  News & Politics
Politics
Sept. 16 2014 2:11 PM Spare the Rod What Charles Barkley gets wrong about corporal punishment and black culture.
  Business
Moneybox
Sept. 16 2014 2:35 PM Germany’s Nationwide Ban on Uber Lasted All of Two Weeks
  Life
The Eye
Sept. 16 2014 12:20 PM These Outdoor Cat Shelters Have More Style Than the Average Home
  Double X
The XX Factor
Sept. 15 2014 3:31 PM My Year As an Abortion Doula
  Slate Plus
Slate Plus Video
Sept. 16 2014 2:06 PM A Farewell From Emily Bazelon The former senior editor talks about her very first Slate pitch and says goodbye to the magazine.
  Arts
Brow Beat
Sept. 16 2014 1:27 PM The Veronica Mars Spinoff Is Just Amusing Enough to Keep Me Watching
  Technology
Future Tense
Sept. 16 2014 1:48 PM Why We Need a Federal Robotics Commission
  Health & Science
Science
Sept. 16 2014 1:39 PM The Case of the Missing Cerebellum How did a Chinese woman live 24 years missing part of her brain?
  Sports
Sports Nut
Sept. 15 2014 9:05 PM Giving Up on Goodell How the NFL lost the trust of its most loyal reporters.