Twitter on Thursday said it has filed documents with the Securities and Exchange Commission for an Initial Public Offering.
The long-expected announcement arrived, appropriately enough, as a tweet.
We've confidentially submitted an S-1 to the SEC for a planned IPO. This Tweet does not constitute an offer of any securities for sale.-- Twitter (@twitter) September 12, 2013
The fact that the filing is confidential indicates that Twitter is seeking to go public as an "emerging growth company." The SEC says emerging growth companies generally have less than $1 billion in revenue. Twitter's prospectus can be expected to provide more specific figures.
Recent estimates have put Twitter's value at around $10 billion. In February, The Wall Street Journal estimated Twitter's value at $12.5 billion. In May, GSV Capital, which owns a stake in Twitter, put Twitter's value at $9.8 billion.
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Facebook when it went public last year priced its IPO shares at $38, giving itself a valuation of more than $100 billion. It took more than a year for investors to agree with that valuation.
As an emerging growth company, Twitter will not be subject to the same disclosure and reporting requirements faced by larger public companies. For example, it can implement accounting requirement changes as if it were a private company. It won't be required to have auditors assess its financial controls annually. And it won't have to disclose as much detail about executive compensation as a larger public company or give shareholders a say in executive compensation decisions.
Also, brokers and dealers who provide research reports on Twitter to potential investors will not be required to provide as much detail as is contained in the prospectus filed with the SEC.
Nikhil Varaiya, director of graduate programs and professor in the finance department at San Diego State University, said in a phone interview that Twitter's timing appears to be good. "This might be a good opportunity," he said. "The window looks like it might be receptive."
Noting that Twitter appears to be growing in popularity and to be viewed favorably by users, he expects enormous demand for shares. But he cautioned that small investors might be wiser to hold off until the stock has stabilized. He pointed to the time it took for Facebook shares to return to their IPO price.
Darren R. Hayes, a computer science professor at Pace University in New York and a former investment banker, agreed in a phone interview that Twitter appears to have chosen to go public at the right time.
"The general market conditions are not unfavorable," he said. "It may be a good time for Twitter to go public. There doesn't seem to be too much negative information about the macroeconomic climate."
Hayes suggests a repeat of the Facebook IPO disaster is unlikely. He blames the underwriter rather than the company itself for failing to attract enough support from institutional investors. He also notes that concerns about Facebook's growth had been raised when GM publicly distanced itself from Facebook advertising (only to return a year later).
Hayes says that a concern among investors in social media companies is that company business models may be vulnerable to being copied. He doesn't see that as an issue for Twitter in the near term, but he says it's something to consider for any social media company.