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Twitter's stock: The next Facebook or LinkedIn?

By Daniel Edwards     Oct 30, 2013 in Technology
After many years of speculation, Twitter is officially preparing to become a publicly traded company, but will Twitter have the smooth transition of LinkedIn or experience a market roller coaster similar to Facebook?
A decade ago, before text messaging had the prevalence it does today, it seemed impossible that a text-based social media service like Twitter could be viable.
Fast forward to the present, it is evident that texting has become a sustainable form of communication, averaging over eight trillion messages sent per year and generating $114 billion in revenue per year.
Twitter is proof that being at the right place at the right time can change the fortunes of a business.
Twitter has matured far beyond texting over the years. Now with a reach of over 200 million monthly users, the content produced and shared by those users has grown and evolved in lockstep. In 2006, Twitter was an obscure platform to discuss what you were eating for lunch or to complain that you missed the train to work. By 2007, the company introduced hashtags, which allow users to quickly find other tweets on the same topic. Hashtags essentially create a platform for global discussion of a singular topic.
With hashtags in tow, Twitter has evolved into a platform where information is shared rapidly. In a sense, it has become a peer-generated media outlet where breaking news is often retweeted by users before traditional news outlets can run a story.
Twitter has grown to become one of the leaders of the social media evolution of recent years and is taking itself public. The company is currently preparing to file an IPO on the stock market in an effort to raise $1 billion.
Despite some optimism, the very evident reality of technology firms on the stock market has been that of uncertainty. The dot-com crash of the early 2000s and the recent market failures of companies like Zynga and Groupon are still fresh in the minds of investors. Combined with the 2012 market roller coaster ride of Facebook’s $100 billion stock fiasco (which is just recently turning a profit for the initial public investors), this creates a thickness in the air for stock exchanges and those debating whether or not to invest in Twitter.
Of the three social media giants – Facebook, Twitter and LinkedIn – Facebook and LinkedIn have already gone public and brought impressive returns for their founders and early investors. However, in regard to the stocks’ performance on the public market, there is a large discrepancy between the stellar performance of LinkedIn compared to that of Facebook.
Facebook shares have recently surpassed its IPO price and brought a decent return for those who held onto their stock during the rough times. In 2012, Facebook stock plunged to a low of $17.73 from the $38 peak that came shortly after going public. The drop was largely due to the company being overvalued at $100 billion, as well as Facebook releasing too many shares into the market (thus diluting the share price).
LinkedIn’s initial valuation of $4.3 billion was more conservative and has brought tremendous growth. The share price has grown from $65 to a high of $254.
Facebook has solved the issue of monetizing its mobile users, which was a major hindrance to the company’s success. But Twitter does not have an issue with engaging its mobile users.
Twitter’s recent release of its financials shows positive growth at $254 million for the first half of 2013. There is a high possibility that if Twitter continues to push user growth, as Facebook has done, while combining the effective execution of LinkedIn, the company can make a smooth transition into the public market.
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