Twitter files for initial public offering of stock

Twitter has helped topple governments, broken the news of the Boston Marathon bombing, and served as a pulpit for the pope and the Dalai Lama.

But it turns out that the ubiquitous social-messaging network is actually kind of a small business.

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The San Francisco company said Thursday that it plans to file an initial public offering of stock and that it submitted its prospectus to securities regulators in secret under a special federal law for “emerging growth companies.” Under the 2012 Jobs Act, that means Twitter must have revenue of $1 billion or less.

The nature of the filing suggests that Twitter, a free service, is grappling with how to make money off of its outsize global influence and pop-culture prominence.

Facebook has faced the same struggles with generating revenue as fast as it racked up users.

But sometimes stock offerings are all about potential, and analysts say the company has much room to grow. Twitter’s stock offering is the most anticipated since Facebook’s rocky IPO in May 2012. Twitter, which describes itself as the global “town square,” has acquired 200 million active users since it launched in 2006.

“It seems like early days for Twitter, not only in terms of monetization of its experience, but also developing a richness of experience through better search, providing historical information and nurturing new investments,” said Ross Rubin, principal analyst at Reticle Research.

The stock offering, expected for the end of the year or early next year, will probably be oversubscribed, experts say. Analysts have previously estimated that the company’s IPO could be valued at $10 billion. But the stock was trading closer to a $15 billion valuation on private markets after the announcement, said Wedbush Securities analyst Michael Pachter.

“There will be a ton of demand. The question is what will be the supply. If it is too much, they will face the Facebook story,” Pachter said.

He said Twitter’s unusual confidential filing was shrewd, allowing the firm to test the waters of an IPO without the risk of disclosing too much information that could scare off investors.

Twitter broke the news very publicly in a tweet, which immediately generated thousands of retweets and media outlets scurrying to report on the event.

“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,” the company wrote on its @twitter account.

Twitter declined to comment further. Experts say the company’s draft S-1 documents can remain confidential for up to 21 days under the law before the company goes on its IPO “road show.”

The IPO will provide the company fresh funds to invest in new lines of business and expand its reach globally. But as a public company, it will come under scrutiny from the public and investors looking for quarterly returns.

Twitter began hosting advertising in 2010 with “sponsored tweets,” which boosts the prominence of paid messages to the top of a user’s page. In 2011, it began to sell political ads. In October 2012, it bought Vine, an app that embeds six-second videos.

Investors will demand stronger operations and a more polished product. Critics say Twitter’s firehose of information — up to 400 million tweets a day — makes it a disorganized and confusing site. Some analysts say it is too difficult for advertisers to stand out and for users to quickly find the information they want.

Hayley Tsukayama contributed to this report.

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