tag:theconversation.com,2011:/au/topics/twitter-ipo-7428/articlesTwitter IPO – The Conversation2017-03-03T10:06:28Ztag:theconversation.com,2011:article/739212017-03-03T10:06:28Z2017-03-03T10:06:28ZSnapchat beats expectations with its IPO but big challenges lie ahead<figure><img src="https://images.theconversation.com/files/159108/original/image-20170302-14717-1wfqt84.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Ink Drop / Shutterstock.com</span></span></figcaption></figure><p>After weeks of speculation, Snap Inc, the owner of messaging app Snapchat, has gone public. Its shares were initially <a href="http://www.independent.co.uk/news/business/news/snapchat-owner-snap-debuts-on-wall-street-valuing-company-above-expectations-at-19-billion-ipo-a7606996.html">priced at US$17</a>, with stocks jumping 44% to US$24.48 on the first day of trading. It brings the value of the business to US$28 billion, making it the biggest technology IPO since Alibaba <a href="https://theconversation.com/alibaba-investors-gamble-on-rise-of-ecosystem-internet-in-record-breaking-ipo-31807">made its debut in 2014</a> and reflects huge demand, considering the initial offering of shares was expected to be between US$14-16.</p>
<p>Many doubted that Snap Inc would achieve such a result. Its popularity is a given, but its ability to generate revenue is highly questionable (it is yet to turn a profit). Plus, we have become accustomed to the hype surrounding these “hot” tech IPOs and the question remains whether the valuation that investment banks come up with for these companies actually makes sense given their fundamentals – or lack of them. The valuation of high growth companies is intrinsically difficult and they are highly risky investments by their very nature.</p>
<h2>Lessons from Facebook and Twitter</h2>
<p>The premises of Facebook and Twitter’s IPOs were very similar to Snap’s, but have had two very different outcomes. They offer two different pictures of the direction Snap could take.</p>
<p><a href="http://www.investopedia.com/articles/markets/081415/if-your-would-have-invested-right-after-facebooks-ipo.asp">Facebook’s IPO</a> in May 2012 was considered by many to be a failure because the stock price nearly plunged below the offer price of US$38 at the opening of trading. Typically, there is a jump in the price above the initial offer price when trading in the secondary market starts – a phenomenon that is <a href="https://dealbook.nytimes.com/2011/05/27/why-i-p-o-s-get-underpriced/?_r=0">known as underpricing</a> and that is commonly (and mistakenly) interpreted as a sign of the success of an IPO. </p>
<p>In the case of Facebook, there was virtually no underpricing, however. In fact, the underwriters had to stop the price of the stock from falling below the IPO price by buying back shares. </p>
<p>Facebook’s share price went on to struggle for over a year, before rising above its IPO price. Now, though, they are trading at about US$136 a share – 259% above the IPO price – and the company has actually been able to generate profits. </p>
<p>Twitter, meanwhile, has had a <a href="http://www.cnbc.com/2015/08/20/twitter-stock-falls-below-ipo-price.html">totally different story</a>. When it went public in November 2014, like Facebook, it was also priced at the top of the initial price range (which was US$26) and on the first day of trading the stock closed at US$44.90. This 73% increase was acclaimed as a big success after the disappointing performance of Facebook a year before. </p>
<p>Three years on, however, and Twitter is currently trading <a href="https://finance.yahoo.com/quote/TWTR?p=TWTR">at around US$15</a>. That’s a 42% decline from its IPO price and the company has consistently generated losses since.</p>
<h2>Snapchat’s future</h2>
<p>So where is Snapchat’s IPO likely to stand between its two forbears? In the short run, the rise in Snap’s shares on the first day or trading will have made a lot of people rich. That’s the “flippers” – investors who buy at the offer price and sell at the market price immediately after. </p>
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<p>In the long run, however, it is likely to be a different story. On average, newly-floated companies are <a href="http://onlinelibrary.wiley.com/doi/10.1111/j.1540-6261.1991.tb03743.x/full">known to underperform</a> when compared to their peers in the three to five years that follow the IPO. This means that an investor who buys shares in Snap now is likely to lose money on it in the long term. </p>
<p>Will the company’s strategy be successful and ultimately be able to turn losses into profits? Snapchat operates in a relatively niche fast-paced market and competition is fierce. When Instagram brought out a feature that almost replicates Snapchat, Instagram Stories, last summer, it had an immediate effect on Snapchat’s customer base, which saw an <a href="https://techcrunch.com/2017/02/02/slowchat/">82% decline in growth</a>. Nonetheless, its average daily users are still at 158m, compared to <a href="https://www.statista.com/statistics/346167/facebook-global-dau/">1.23 billion for Facebook</a> and less than <a href="https://www.bloomberg.com/news/articles/2016-06-02/snapchat-passes-twitter-in-daily-usage">140m for Twitter</a>.</p>
<p>Shareholders seem to have signalled that they believe Snapchat will ultimately prevail – to the point that they clamoured to buy the company’s initial offering of shares, in spite of a significant concern. In an unprecedented decision for a US IPO – something Snap <a href="https://www.sec.gov/Archives/edgar/data/1564408/000119312517029199/d270216ds1.htm">acknowledged in its prospectus</a> – shares bought in the offering will not carry voting rights over the company’s decision making. Instead, the company’s decisions will be controlled by its two co-founders, Evan Spiegel and Bobby Murphy, who together control about 89% of the voting power. </p>
<p>They will need to put on a good show – it’s not just Facebook that they need to beat, but the rival start-ups that are constantly jockeying for attention on the tech scene.</p><img src="https://counter.theconversation.com/content/73921/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sonia Falconieri does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Demand has surged for Snapchat’s stock but the loss-making company’s long-term success is far from certain.Sonia Falconieri, Reader in Finance, City, University of LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/199722013-11-11T03:31:22Z2013-11-11T03:31:22ZTwitter’s IPO and the dark side of valuing companies<figure><img src="https://images.theconversation.com/files/34842/original/7ynghk43-1384124768.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Twitter has been valued as high as US$31 billion, but can the valuation be justified?</span> <span class="attribution"><span class="source">NYSE/AAP</span></span></figcaption></figure><p>Social media darling Twitter ended last week with US$2.3 billion wiped off its market valuation, following a 7.24% fall in its share price on the second day it traded. Despite the slip, the share price ended at US$41.64, significantly higher than the issue price of US$26. </p>
<p>The problems of valuing companies like Twitter are not new. Twitter is the latest example of a difficult to value business, but the same can be said of many listed companies including Google, Facebook and LinkedIn. </p>
<p>Aswath Damodaran’s fascinating book “<a href="http://www.valuewalk.com/2013/10/aswath-damodaran-dark-side-of-valuation/">The Dark Side of Valuation</a>” talks about the need to convert stories to numbers. This is perhaps the most difficult thing to do when valuing companies like Twitter. </p>
<p>Damodaran argues many people who claim to be doing “valuation” are actually just “pricing”, and valuations often go bad due to problems in the valuation process.</p>
<p>Twitter has invested large amounts of money in developing its business yet it has not managed to make a profit. </p>
<p>As <a href="http://www.sec.gov/News/Speech/Detail/Speech/1370540284590">indicated</a> by Mary Jo White, Chair of the US Securities Exchange Commission, the metrics used in selling recent IPOs like Google and Twitter to the public are not closely related to profits or even to sales of product. She identifies some of the recent measures that companies have touted as proof of their value. </p>
<blockquote>
<p>“… the number of users of the service, the number of players of an online game, or the number of people who quote "liked” the company or something the company does.“</p>
</blockquote>
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<img alt="" src="https://images.theconversation.com/files/34843/original/rjzdsy5s-1384125090.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/34843/original/rjzdsy5s-1384125090.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/34843/original/rjzdsy5s-1384125090.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/34843/original/rjzdsy5s-1384125090.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/34843/original/rjzdsy5s-1384125090.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/34843/original/rjzdsy5s-1384125090.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/34843/original/rjzdsy5s-1384125090.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Pets.com, one of the worst dot.com disasters of the 2000 crash, worked out it would take five years for it to reach break-even point. It was eventually liquidated.</span>
<span class="attribution"><span class="source">le_disko/Flickr</span></span>
</figcaption>
</figure>
<p>To get a better sense of the problems faced in valuing these firms it’s worth revisiting the internet crisis of 2000. During this period it was often argued there was a pricing bubble in the internet industry with market prices arguably no longer reflecting value. </p>
<p>Yet, when the crunch came it was not the result of new disclosures about the various measures of internet activity but earnings reports issued in 2000 for the 1999 year. These showed that predicted profits had not eventuated. </p>
<p>The real issue in valuing internet companies is in achieving some sensible understanding of the cash flows that the business is capable of achieving. Reliance on simple counts makes little sense even when touted by the spruikers of these new companies as the only available information on which to base valuations. </p>
<p>Valuation requires the identification of expected cash flows that the company can reasonably be expected to generate, and while this may be related in some sense to web site visits, it must ultimately be linked to expected profits and cash distributed to shareholders, either as dividends or capital gains. </p>
<p>Most internet companies rely on advertising revenues to drive their profits and so it’s critical for analysts to estimate future advertising demand in the industry and identify the share that the internet company will be able to capture. </p>
<p>Advertisers are usually careful with their advertising spending and tend to follow up on expenditures to see whether sales of product or service are actually affected by the advertising. </p>
<p>If the internet company has not fully developed its product or if there are issues with competition in the future then the valuation task becomes more complex as there are different scenarios that could occur. Valuation of these more complex businesses involves an attempt to capture the complexity of the business. This is a challenging task and might be solved using complex mathematical tools or careful thought and research into the key value drivers. The valuation of these companies is unlikely to be driven by "the number of people who ‘liked’ the company,” for example. </p>
<p>Scenario analysis is one approach to dealing with the uncertainty of the valuation of these companies. With this approach the firm is valued under a number of situations and the analyst attempts to identify those elements of the company’s business that most affect its value. For example, the development of an internet business might be particularly sensitive to government interference in terms of restricting access to citizens or from government oversight of how the system is used by citizens. Entry of competitors could also be a problem. </p>
<p>So the company might be valued on the basis of free entry to all countries as well as access restrictions in some key countries. “Real option valuation” is also used and this involves identifying the key options that the business faces and then valuing these options. This can be complex as options become more valuable as uncertainty increases. </p>
<p>Real options are often called managerial options as the value of the option rests on the ability of management to exercise them at the best time for the firm. It’s generally best for the firm if management do nothing in periods of extreme uncertainty and indeed the value of real options is greatest during periods of great uncertainty. In effect the market rewards management for doing nothing during these periods. </p>
<p>As uncertainty reduces managers are able to make more informed decisions and so certain real options might then be exercised. Classic examples of real options include the option to grow the business, the option to reduce the business and the option to abandon the business altogether. </p>
<p>Chris Walters and Tim Giles <a href="http://mba.tuck.dartmouth.edu/paradigm/spring2000/articles/walters-decision_making.html">argue</a> real options should be considered alongside payback rules, accounting rates of return, and net present values for better investment decision making.</p><img src="https://counter.theconversation.com/content/19972/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>I have received funding from the ARC. </span></em></p>Social media darling Twitter ended last week with US$2.3 billion wiped off its market valuation, following a 7.24% fall in its share price on the second day it traded. Despite the slip, the share price…Richard Heaney, Winthrop Professor, The University of Western AustraliaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/200052013-11-08T06:30:27Z2013-11-08T06:30:27ZTwitter frenzy could generate another tech bubble<figure><img src="https://images.theconversation.com/files/34700/original/26jq6jxz-1383849617.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The start of something beautiful?</span> <span class="attribution"><span class="source">Garrett Heath</span></span></figcaption></figure><p>During the past few years, a strange evening ritual has begun to spring up around the City of London. Instead of heading to the local pub with their colleagues, city workers are flocking to cocktail parties to rub shoulders with tech types.</p>
<p>Walking into one of these soirées, one is struck by the two distinctly different types of people hobnobbing in the same room. On one side are bearded dudes wearing jeans and trainers, maybe a crumpled shirt and a suit jacket they found in the back of their closet. They are drinking beer and talk about code, or maybe fixed-wheel bikes. </p>
<p>On the other side of the room are a group of more distinguished looking gentlemen in fine dark suits and ties. They discuss their portfolios over a middling glass of sancerre. They wait for the obligatory speech which makes fun of this two tribes being brought together. </p>
<p>During this speech they are told about a glittering future, powered by web 2.0, social media and all sorts of other digital innovations. It’s a future that offers opportunities for money making.</p>
<p>This widespread enthusiasm for technology is not just talk. Established firms are regularly willing to pay a massive premium to acquire emerging tech companies which have no clear plans about how they will generate a profit. But are we setting ourselves up for another crash when we believe the hype?</p>
<p>The most recent example of the endless enthusiasm for all things tech is Twitter’s initial public offering. Plans to list were at first based on a price of US$17-US$20. However, following weeks of media hype, the company settled on <a href="http://www.ft.com/cms/s/0/183afb4a-4768-11e3-bdd2-00144feabdc0.html">US$26</a>.</p>
<p>Some saw this as a relatively conservative price that might help Twitter avoid the big hit suffered by Facebook <a href="https://theconversation.com/facebook-paves-the-way-for-investor-confidence-in-twitter-18973">following its own IPO last May</a>. For others, the valuation is based on some rather <a href="http://www.ft.com/cms/s/3/e71cca6a-4736-11e3-bdd2-00144feabdc0.html?siteedition=uk#axzz2jy2z5NI0">shaky assumptions</a>.</p>
<p>When the markets opened, the price rocketed beyond the US$50 mark at one point. By the end of the day, the price of Twitter shares was up 73% from the listing price at US$44.90. This rapid rise was largely driven by frenzied demand from <a href="http://on.ft.com/16KHLD4">retail investors</a> and led many commentators to <a href="http://www.newyorker.com/online/blogs/johncassidy/2013/11/six-questions-for-investors-in-twitter.html%5D">note</a> that collective hype had led investors to overlook the fundamentals of the company.</p>
<p>Typically when shares are initially floated on the stock exchange they are <a href="http://bear.warrington.ufl.edu/ritter/publ_papers/ritterwelch.pdf">underpriced but over-valued</a>. The price they are initially offered at is lower than what the market is willing to pay. This means the price normally goes up during the first day of trading. However, in subsequent trading, the price usually falls because investors begin taking a long hard look at the fundamentals of the business and find them wanting. On average the medium term fall is somewhere between <a href="http://www.fin.ntu.edu.tw/%7Econference/conference2002/public_html/proceding/1-4.pdf">20% and 50%</a>. This indicates the price of shares was overvalued at the time of the IPO.</p>
<h2>Why so cheap?</h2>
<p>This strange pattern opens up two big questions. The first is why do firms like Twitter initially sell their shares so cheaply? To answer this question we need to look at the broader context in which IPOs occur. </p>
<p>Typically, investment banks help to make the deal happen by acting as an underwriter. These banks are working on many IPOs a year –- and their objective is to keep their clients happy. But they have two sets of very different clients: on the one side is the company whose shares they are offering, on the other are the institutional investors, like pension funds, to whom they are selling shares.</p>
<p>They can afford to annoy the company because they only work with it only once or twice to sell its shares. But they cannot afford to upset the institutional investors because they continue to do business with them on a routine basis during other IPOs. This means they probably need to sell the shares of an IPO a little cheaper than the open market might like in order to keep their <a href="http://amj.aom.org/content/51/2/277.short">precious institutional investors happy</a>.</p>
<h2>Guessing value</h2>
<p>The second big question is why are investors willing to pay over the odds? This is often because there is a lot of uncertainty about how much a firm is worth. Investors just don’t know the companies and what kinds of benchmarks they should use to assess them. </p>
<p>In the absence of this important information, symbolism becomes everything. Investors tend to look for indicators a company might be a good bet, such as whether it has <a href="http://asq.sagepub.com/content/44/2/315.short">prestigious partners or investors</a>, whether it is able to tell <a href="http://asq.sagepub.com/content/52/1/70.short">a good story about itself</a>, if it has [hired respected or well-known staff](http://amj.aom.org/content/51/5/954.short](http://amj.aom.org/content/51/5/954.short) or even if it is based in a <a href="http://asq.sagepub.com/content/48/2/175.short">particular location</a>.</p>
<p>Another important way investors try to quell their anxiety is by keeping an eye on what others are or doing or <a href="http://www.business.uconn.edu/ccei/files/IDEAawards/pollock_market_watch.pdf">saying about the firm</a>, such as if there is a big media buzz. </p>
<p>All these pieces of information are used as rough indicators about whether the firm is a good investment or not. But, crucially, they can often stop investors from asking tricky questions about the fundamentals of the firm in which they are investing. Twitter may prove to be a good long-term bet. But the only thing we can be certain of is that we don’t know. </p>
<p>This tendency to be carried along by the story rather than asking tough questions about the assumptions, the endgame and the reasoning behind such a valuation could mean actors are making themselves <a href="https://dl.dropboxusercontent.com/u/8650451/Alvesson%20and%20Spicer%2012%20JMS.pdf">artificially stupid</a>. </p>
<p>If we want to avoid a repeat of the disastrous tech-stock bubble of 1999-2000 then it is important that we begin to ask tough questions about the assumptions on which valuations are made, the quality of reasoning these valuations are based on, and precisely what the end game of these stocks might be. To do this, it is necessary to put aside the frothy feel-good stories and think in a hard headed way about a much more mundane, and probably less profitable future.</p><img src="https://counter.theconversation.com/content/20005/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Andre Spicer does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>During the past few years, a strange evening ritual has begun to spring up around the City of London. Instead of heading to the local pub with their colleagues, city workers are flocking to cocktail parties…Andre Spicer, Professor of Organisational Behaviour, Cass Business School, City, University of LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/198412013-11-04T14:49:54Z2013-11-04T14:49:54ZHow Twitter has helped the emergence of a new journalism<figure><img src="https://images.theconversation.com/files/34414/original/wx2jvsqz-1383572972.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">It's news, but not as we knew it.</span> <span class="attribution"><span class="source">Andrew Matthews/PA </span></span></figcaption></figure><p>Twitter’s Initial Public Offering (IPO) is due to take place on Wednesday. The company <a href="http://dealbook.nytimes.com/2013/10/24/twitter-said-to-be-close-to-unveiling-price-range-for-i-p-o/?_r=0.">values itself at US$12 billion</a> and expects to raise up to US$1.3 billion in sales.</p>
<p>But let’s forget about the money and think about Twitter’s impact in its relatively short lifetime of seven years. On average there are now <a href="http://www.sec.gov/Archives/edgar/data/1418091/000119312513390321/d564001ds1.htm">500m tweets a day</a>. You don’t even have to tweet to be on Twitter. Some 40% of users simply use Twitter as a “<a href="http://www.telegraph.co.uk/technology/twitter/9945505/Twitter-in-numbers.html">curated news feed of updates that reflect their passions</a>”.</p>
<p>“News feed” is important because Twitter has clearly changed the way news is gathered, disseminated and consumed. </p>
<p>This year’s biggest story, the Edward Snowden/NSA leaks, provides an instructive example. A senior Guardian executive <a href="http://blog.twitter.com/2013/guardian-says-twitter-surpassing-other-social-media-for-breaking-news-traffic">pointed out that</a>, “the story really broke from us and on Twitter. It took an hour before the breaking news stations got this.” </p>
<p>Twitter drives traffic to The Guardian’s sites from areas where there is no print edition. According to Nicky Wolf in <a href="http://www.theatlantic.com/national/archive/2013/07/how-i-the-guardian-i-broke-the-snowden-story/277486/">The Atlantic</a>, June 10, the day after Snowden revealed his identity on The Guardian‘s website, was the biggest traffic day in the paper’s history, bringing the site 6.97 million unique browsers. “On June 10, for the first time in the paper’s history, their US traffic was <a href="http://www.theatlantic.com/national/archive/2013/07/how-i-the-guardian-i-broke-the-snowden-story/277486/">higher than their UK traffic.</a>”</p>
<p>In this sense, Twitter facilitates the global expansion of The Guardian into previously difficult-to-reach markets. This is key to the business models of most modern news outlets – reaching new markets is of course a major demand of advertisers. </p>
<h2>Newsrooms go social</h2>
<p>Social media has transformed newsrooms, speeding up newsgathering and enabling recourse to wider ranges of sources and material. </p>
<p>The corollary of the ubiquity of Twitter is that journalist’s roles have changed significantly. Twitter never sleeps and neither does the modern journalist, who is scanning updates 24/7, posting and retweeting. </p>
<p>This is often a hostile environment. As journalist and blogger <a href="http://www.fullsailblog.com/5-ways-the-newsroom-and-the-journalist-has-changed-forever">Amy Cassell</a> said:</p>
<blockquote>
<p>One small error can compound itself instantaneously, thanks to the eager efforts of would-be investigators lurking in the comments section and armed with instant search. Corrections are no longer an afterthought process – they happen in real time for the world to see. This also means that the audience will penalise wrong reporting harshly. So you had better make sure your reporting is ironclad.</p>
</blockquote>
<p>Where once correspondents were reachable only through the letters pages, the illusion of journalistic omniscience has been challenged.</p>
<p>News can be broken on Twitter by the participants in, or observers of, a particular event. The journalist often becomes an interpreter, reacting to events quickly and frequently – and he or she often has to sift through swathes of information and opinion before deciding on what to report. </p>
<p>As technology journalist Alex Masters argues, Twitter interaction has become <a href="http://blogs.independent.co.uk/2013/01/31/twitter-experiences-yet-another-outage-are-we-relying-too-much-on-tweets/">synonymous with news reporting</a>. Media outlets rely heavily on crowdsourced content to “help provide real-time information, reaction and public opinion during breaking news stories”. Consider that this process is relentless and we may begin to sympathise with the modern reporter.</p>
<h2>Twitter becomes the news?</h2>
<p>There are those who suggest that Twitter has had a trivialising effect on journalism. That it is lazy and convenient for journalists to rely on Twitter “outrages” for news. </p>
<p>A quick look the newspapers in the last few weeks gives some credence to that view. A the Twitter “spat” between <a href="http://www.theguardian.com/politics/2013/oct/24/nick-clegg-lord-sugar-twitter-spat-pensioners">Lord Sugar and Nick Clegg</a> made it into The Guardian’s politics section, for instance, and during the recent vicious British weather <a href="http://www.dailymail.co.uk/news/article-2478691/UK-storm-Anger-Gary-Linekers-tasteless-St-Judes-storm-tweet.html">various newspapers</a> printed the tweets of celebrities who had ridiculed the effects of the storm. </p>
<p>These are just two examples of very many instances and as US media analyst Jeff Sonderman <a href="http://www.poynter.org/latest-news/mediawire/171802/is-twitter-ruining-journalism/">points out</a>: </p>
<blockquote>
<p>It is possible to overuse Twitter to the detriment of your other reporting; it is possible to pursue trivial tweetable “scoops” to the detriment of insightful journalism. </p>
</blockquote>
<p>But, he says, “the solution isn’t to not use Twitter — it’s to not use Twitter that way”. Perhaps this is the key. It’s the way in which Twitter is used that determines its worth – and the power of the medium should not be underestimated.</p>
<h2>Productive usage</h2>
<p>There are numerous examples of this sort of productive use of social media. Perhaps most famously, Twitter was successfully used in the Arab Spring of 2011 to mobilise support for change both locally and internationally. </p>
<p>Closer to home, it could be argued that in the early days of the phone hacking scandal it was the <a href="http://www.bbc.co.uk/news/technology-14029033">campaign on Twitter </a> urging advertisers to refrain from dealing with the News of the World that quickened the paper’s demise. </p>
<p>Genuinely perturbed by the situation and the potential damage by association, one by one major companies began to distance themselves from the newspaper. Just a day after The Guardian broke the story, General Motors, Mitsubishi Motors, the Co-Operative and Lloyds Bank were among those who <a href="http://www.marketwatch.com/story/more-advertisers-withdraw-from-news-of-the-world-2011-07-06">suspended advertising</a>.</p>
<p>In May the Everyday Sexism Project, “Women, Action and the Media”, launched an international campaign against Facebook content that they felt incited rape and domestic violence. After more than <a href="http://www.independent.co.uk/voices/comment/the-day-the-everyday-sexism-project-won--and-facebook-changed-its-image-8636661.html">60,000 tweets using the #FBrape hashtag</a> and another co-ordinated campaign aimed at advertisers, Facebook was forced to <a href="https://www.facebook.com/notes/facebook-safety/controversial-harmful-and-hateful-speech-on-facebook/574430655911054">issue a statement</a> promising to act upon each of the stipulations called for by Everyday Sexism.</p>
<p>While these are examples of activism and not journalism, they are certainly sources of information. Any news organisation which ignored or completely discounted what was appearing on social media during the Arab Spring would have missed the primary providers of news, both written and visual. That situation is unthinkable.</p>
<p>Twitter’s importance to the future of journalism is evident. <a href="http://thenextweb.com/media/2012/02/15/two-worlds-collide-twitter-the-butterfly-effect-and-the-future-of-journalism/">Paul Lewis</a>, The Guardian’s Washington correspondent and winner of the best Twitter feed in the Online Media awards said in 2012:</p>
<blockquote>
<p>Twitter is the digital footprint of things that are happening around the world. If Twitter becomes as ubiquitous as the mobile phone – there’s 4bn mobile phone users in the world – that’s huge. As a journalist who wants to find out things people don’t want you to know, that’s very exciting.</p>
</blockquote><img src="https://counter.theconversation.com/content/19841/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Jewell does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Twitter’s Initial Public Offering (IPO) is due to take place on Wednesday. The company values itself at US$12 billion and expects to raise up to US$1.3 billion in sales. But let’s forget about the money…John Jewell, Director of Undergraduate Studies, School of Journalism, Media and Cultural Studies, Cardiff UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/189732013-10-08T05:14:38Z2013-10-08T05:14:38ZFacebook paves the way for investor confidence in Twitter<figure><img src="https://images.theconversation.com/files/32599/original/f3fbcgsr-1381170005.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Turn left at Facebook street.</span> <span class="attribution"><span class="source">dullhunk</span></span></figcaption></figure><p>As Twitter sets off on its <a href="http://www.theverge.com/2013/10/3/4792166/twitter-ipo-initial-public-offering">IPO</a> roadshow, most analysts are predicting a strong response. But the social media giant remains in a slightly odd position: its revenues in the first half of 2013 more than doubled that of the equivalent period last year, and yet its net losses have also increased.</p>
<p>What makes such a company so attractive? One of the key reasons is that markets and investors are more clued up about social media companies than even a year or two ago. </p>
<p>Twitter may have a unique business model, but without the confidence of business investors, this IPO would be pointless. And the expected confidence in Twitter is only apparent as investors have learned from its great rival: Facebook.</p>
<h2>Documenting progress</h2>
<p>Every company wishing to seek investment on the US stock market must first submit an “S-1 form” with details of their finances. Twitter’s <a href="http://www.sec.gov/Archives/edgar/data/1418091/000119312513390321/d564001ds1.htm">document</a> provides us with a rare glimpse into a company with just 2,000 full-time employees whose platform is behind the delivery of more than 500m tweets per day.</p>
<p>The S-1 clearly has been <a href="http://qz.com/132000/here-are-the-secret-edits-twitter-made-to-its-ipo-filing-hoping-investors-wouldnt-notice/">refined and diligently developed</a> over recent months, and lessons have been learned from Facebook’s <a href="http://money.cnn.com/2012/05/23/technology/facebook-ipo-what-went-wrong/index.htm">traumatic market debut</a> back in May 2012. Twitter realised that investors need a precise business case for the future growth strategy of the firm, and that this needs to be linked with tangible and measurable outcomes for users, platform partners and advertisers. </p>
<p><a href="http://support.twitter.com/articles/142101-what-are-promoted-tweets#">Promoted Products</a>, for instance, was launched for mobile platforms in February 2012. This service allowed advertisers to promote tweets and reach a wider group of users or to spark engagement from their existing followers. These products helped the firm increase its revenue stream from mobile devices and now over 65% of Twitter’s advertising revenue is generated from phones.</p>
<p>Investors now also have more experience in dealing with business models released by social media companies. Gauging the future growth potential of any one social media brand was considered a lottery not so long ago; as the industry matures, it is becoming increasingly easier to predict.</p>
<h2>Unique in its simplicity</h2>
<p>In the S-1 Twitter describes its platform as “unique in its simplicity”. This statement distills the fundamental business model of the firm and explains why analysts are still predicting further growth. </p>
<p>Stemming from its roots as an SMS-based messaging system, the limit of 140 characters per tweet means that it is relatively easy to attract new users while keeping current users actively engaged. The relatively low bandwidth short messages also puts less pressure on internet and mobile phone networks, which allows for a more reliable and integrated experience for users across various platforms and geographical locations. </p>
<p>Finally, the simplicity of the platform has allowed the firm to offer a set of reliable and non-complicated products for platform partners (twitter cards, twitter for websites, special development tools) and advertisers (promoted tweets, promoted accounts and promoted trends).</p>
<h2>Learning from Facebook</h2>
<p>By entering the stock market now, Twitter is also capitalising on what investors, and the market at large, know from Facebook. </p>
<p>First, Facebook’s eventual profitability helps deal with question marks about Twitter’s current losses. Second, compared to early 2012, platform providers and advertisers today have a much more advanced appreciation of how best to utilise user data, and deliver tailored services of high value to users. Third, Twitter services are much more embedded into mobiles and that has allowed the platform to remain relevant to the growing audience of smartphone users. Most users now access Twitter from their mobile, and the most engaged users are the ones using mobile applications. </p>
<p>There are issues still to be resolved, of course, not least the need to reach out to audiences and advertisers beyond the US. Though over three quarters of users are non-US, just 25% of the firm’s total revenue comes from advertising in this region.</p>
<p>The post-IPO future of Twitter might push the firm into building a more a profitable business case - provided the user experience is not affected. Despite the many challenges still ahead the company now seems poised to attract investors’ attention. But this would not have been possible without a little help from an unlikely source, Facebook.</p><img src="https://counter.theconversation.com/content/18973/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sotirios Paroutis does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>As Twitter sets off on its IPO roadshow, most analysts are predicting a strong response. But the social media giant remains in a slightly odd position: its revenues in the first half of 2013 more than…Sotirios Paroutis, Associate Professor of Strategic Management, Warwick Business School, University of WarwickLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/187532013-10-04T04:48:15Z2013-10-04T04:48:15ZThe winners and losers in Twitter’s NFL deal<figure><img src="https://images.theconversation.com/files/32463/original/wzvj3365-1380857675.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Twitter's deal with the NFL will open a new stream of revenue in the lead up to their IPO</span> <span class="attribution"><span class="source">Shutterstock.com</span></span></figcaption></figure><p>Twitter’s IPO <a href="http://www.sec.gov/Archives/edgar/data/1418091/000119312513390321/d564001ds1.htm">filing</a> has today revealed a loss of $US69 million on $US254 million in revenue in the first half of the year - which is up on the US$49 million loss in the same period last year. </p>
<p>With results like these, it is vital that they explore new ways to generate revenue if they hope to meet expectations of US$1 billion in earnings next year.</p>
<p>Twitter is currently building partnerships with commercial content providers, in order to develop into new ways to increase revenues. It has gained a lot of attention for a deal with the US National Football League (NFL), alongside alliances with the <a href="http://www.adweek.com/news/technology/cbs-sees-potential-mid-market-advertisers-twitter-amplify-152652">CBS</a> broadcast network. </p>
<p>The expectation is that the NFL will provide real-time video highlights, video clips from major games broadcast on networks such as CBS and Fox, commentary, news and ‘<a href="https://twitter.com/NFLfantasy">fantasy</a> football’. Much of that content will feature advertisements, with Twitter and the NFL sharing the associated revenue. </p>
<p>The latest <a href="http://www.nfl.com/news/story/0ap2000000250954/article/nfl-twitter-partner-to-bring-exclusive-content-to-fans-worldwide">announcements</a> from Twitter are bad news for Australia’s commercial television networks. But it serves as a reminder that the principle of the ‘Attention Economy’ is alive and well in the multi-channel, micro-audience age.</p>
<p>Commercial broadcasting – on a free to air or subscription basis – is based on the principle that if you own the pipeline (aka the distribution channel) you can make money by delivering content to a mass audience. The content needs to be what the audience wants to hear or see, ideally what it cannot access elsewhere. </p>
<p>In essence the audience <a href="http://www.wired.com/wired/archive/5.12/es_attention.html">pays with its attention</a>, and advertisers pay the pipeline operator for a chance to grab some of that attention. </p>
<p>Twitter, as the owner of its own pipeline, can be held to the same principle. Much like a commercial broadcaster, it makes money delivering content to the masses and attaching targeted advertising to that content.</p>
<h2>Who comes out on top?</h2>
<p>So, what does the NFL deal mean for Twitter, for traditional broadcasting, and for other social networking services such as Facebook?</p>
<p>The partnership is good news for Twitter, particularly as it heads for an <a href="http://www.bloomberg.com/news/2013-10-02/twitter-s-revenue-per-user-is-key-for-investors-seeking-clarity.html">IPO</a> that is meant to validate its US$10 billion notional valuation and estimated earnings of US$1 billion next year. Twitter is currently in the same position as Amazon.com was a decade ago, hoping that revenue growth will quickly outpace losses. </p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/32462/original/zrbb5dv8-1380857449.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/32462/original/zrbb5dv8-1380857449.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/32462/original/zrbb5dv8-1380857449.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/32462/original/zrbb5dv8-1380857449.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/32462/original/zrbb5dv8-1380857449.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/32462/original/zrbb5dv8-1380857449.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/32462/original/zrbb5dv8-1380857449.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The partnership is good news for Twitter.</span>
<span class="attribution"><span class="source">PiXXart / Shutterstock.com</span></span>
</figcaption>
</figure>
<p>The NFL deal opens up new revenue channels to help Twitter move towards their US$1 billion earnings target. For example telecommunications giant Verizon will pay huge dollars to be the exclusive Twitter advertiser for the Super Bowl. Getting the attention of millions of sports-mad Americans is expensive: recently Verizon agreed to pay US$1 billion over four years to significantly expand its rights to air NFL games on mobiles through an NFL Mobile app.</p>
<p>For broadcasters the partnership is a reminder that they aren’t the only channels through which consumers access content. Commercial success is about compelling content – what’s wanted by consumers in the attention economy – and not about owning one of a handful of pipelines that are restricted by spectrum scarcity and government licensing. The broadcasters will be under pressure to pay the NFL more money for privileged or exclusive access. Controlling access was one of the subtexts in last month’s election: as much about <a href="https://theconversation.com/news-corp-australia-vs-the-nbn-is-it-really-all-about-foxtel-16768">Foxtel</a> and football as about Kevin, Julia, Tony and drowning refugees.</p>
<p>For Facebook and privacy the partnerships are bad news. Facebook is reported to be losing its hold on the attention of particular demographics, particularly US consumers aged 17 to 25 (ie prime targets of the NFL and other advertisers). One response is likely to be more aggressive data mining by Facebook and its partners, potentially with a backlash from consumers over more ‘in your face’ advertisements and profiling. As a result, consumers may move their attention over to a competitor.</p>
<h2>The future for Australian pay-TV</h2>
<p>Broadcasting in Australia has been predicated on the notion of one audience addressed through a handful of pipelines. That notion is also apparent in much of the thinking surrounding newspaper publishing, with broadsheets, for example, allowing advertisers to purportedly reach an audience that extended from corporate directors and consumers of haberdashery to job seekers and used-car buyers. </p>
<p>The Twitter-NFL deal is a reminder that we are moving towards the ‘audience of one’ – targeted communication to a micro-audience that is reached through a proliferation of pipelines, some of which overlap and few of which engender much consumer loyalty. </p>
<p>If you are the sort of person who absolutely needs to see the footy highlights on your phone, tablet, desktop machine or big-screen TV in the kitchen and bedroom your choice of pipeline is likely to be determined by convenience, timeliness and cost rather than whose corporate logo appears on the pipe. Twitter is about attention, not technology.</p><img src="https://counter.theconversation.com/content/18753/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Bruce Baer Arnold does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Twitter’s IPO filing has today revealed a loss of $US69 million on $US254 million in revenue in the first half of the year - which is up on the US$49 million loss in the same period last year. With results…Bruce Baer Arnold, Assistant Professor, School of Law, University of CanberraLicensed as Creative Commons – attribution, no derivatives.