Twitter vs Facebook IPO: Differences and similarities

The IPO of micro blogger Twitter on November 7th caused greater excitement than that of Facebook’s IPO which was held just 18 months prior on May 18, 2012. That IPO was one of the biggest in technology and Internet history, with a peak market capitalization of over $104 billion.

Two weeks since Twitter’s launch, comparisons abound about the two social media companies and varying opinions prevail as to their future positions as profitable stock choices.

Differences

The two businesses really aren’t exactly alike. Facebook is more about personal connections. As of September 2013, Facebook had over one billion active users, more than half of whom use Facebook on a mobile device. Twitter enables its users to send and read text-based messages of up to 140 characters, known as “tweets”.  It is more about broadcasting public conversations and emphasizes real-time trends in the world. Twitter is a much smaller company, with only 215 million monthly active users.

A major difference between the two IPO’s is that Facebook was profitable at launching, while Twitter was not and still isn’t. During its first years of operation, Twitter did very little marketing and only started placing ads on mobile last summer. Facebook has aggressively advertised itself from its very beginning in 2004.

Revenue

In addition, Facebook spent less of its revenue on general administrative costs and less than half of what was spent by Twitter on sales and marketing before their respective IPOs.

Twitter’s revenue is on the upswing, growing faster than that of Facebook. Its strength has always been in mobile, which is in sharp contrast to Facebook at the time it went public. Three quarters of Twitter’s users access the service through a mobile device, accounting for 65 percent of ad revenue.

Facebook’s and Twitter’s ownership structures also differ. Twitter has no controlling shareholder with special voting rights. The largest stakeholder is co-founder and former CEO Evan Williams with a 12 percent stake, while Chairman Jack Dorsey has 4.9 percent. It only has one class of shares, while Facebook qualifies as a “controlled company” with a huge amount of power lying in the hands of CEO Mark Zuckerberg with his 57 percent ownership of Facebook’s Class B voting shares.

Analysts do not regard the IPO’s of the two companies as indicative of their future performance. The Facebook launch was considered a debacle, with over with 276 million shares valued at $11.5 billion purchased in its first 60-minutes of trading. The public offering turned out to be an event marred by technical glitches and marked by unhappy investors. As a result, the company’s overvalued stock fell 44 percent in the first seven months of trading. But investors are still optimistic.

Twitter saw 63 million shares valued at $2.8 billion trade in the opening hour of its launch and was more easily digested by the NYSE. Demand for its stock was so strong before the launch that Twitter chose to stop selling stock on Tuesday at 12:00 EST, a day before the IPO. Facebook, by contrast, spent the run-up to its IPO telling institutional investors it was reducing its earnings estimates, even as it raised its share price and the size of its stock offering.

IPO Prices

Both companies raised their initial share price the week of the IPO. Facebook aggressively raised its share price range just four days before its IPO. Similarly, Twitter amended its SEC filing Monday morning, three days before its trading debut, raising its IPO share price range to between $23 and $25 a share, up from the $17 to $20 listed in its initial filing. In the end, it opened at $26.00 and ran up as high as $45 only to drop to $41 at the close of the day.

As of today, Twitter is up 58 percent since its IPO and is valued at 21 times its estimated 2014 sales of $1.1 billion. This is more expensive than Facebook which has five times as many users as Twitter and trades at 11 times its sales.

The 6-month anniversary of Twitter as a public company will coincide with the expiration of a standard lockup waiting period for Twitter executives and directors who will then be able to sell their stock. According to its prospectus, some non-executive employees may be eligible to sell almost 10 million shares as early as Feb. 15. This will certainly affect the share price.

According to a Bloomberg report, there are many analysts that have rated Twitter a sell, citing concerns that user growth may be limited compared with rival social networks. They anticipate a major decline in the stock price over the next few months.

On the other hand, Facebook’s stock has surged 91% this year and most investors have already forgotten its dramatic opening day.  Many attribute this rise to positive marketing trends with some experts boasting that Facebook has the most advantageously competitive product in the market.

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