Why Going Public Is Good For Twitter
- Posted by Jeff Carter
- on September 16th, 2013
The discipline of the market is a good thing. No one is bigger than the market. It allocates resources to winners, and pulls them from losers. Because of electronic trading, it does it even faster than it used to.
Look at a company like Facebook ($FB).
People think it’s IPO flopped. I never did. It only flopped for the flippers.
The public marketplace brings about a different discipline that affects the company’s decision making. It was used to answering to customers and closely held investors. Sometimes their feedback isn’t useful. No single investor is smarter than the market over the long haul.
Mr. Public Market’s feedback is always useful. Decisions are interpreted and transferred to a price. That price is the distilled reading on the macro economy and the operations of the firm. Twitter never has had to face Mr. Market. Things will change now, and it won’t just be to drive profits.
Since going public, Facebook has changed. They have become more proactive about rolling out innovation. They are thinking differently. I have noticed it with my Facebook wall. Things that weren’t there a year or two ago now pop up. Some of it is visible, and some of the things they are doing aren’t visible. But, the focus is on innovating and doing it quickly.
Twitter is supposed to go public at $15 billion. My guess is that the company value will drop when it goes public. The general naysayers will make fun of Twitter in 140 characters. But, don’t count them out when their stock drops.
They are only beginning to innovate.
Early investors in startups make money because they see something no one else does. They have asymmetric information that the rest of the world cannot grasp. It’s how they win.
Going public makes it harder to have asymmetric information. It’s why the market pays attention when insiders buy or sell. Twitter will still have naysayers when it goes public. How can you communicate in 140 characters?
But Twitter will pick up users when it goes public. The late adopters will finally cave and create accounts, because the fear of missing out will overwhelm them. Innovating and including features for the late adopters might cause Twitter to go to the next level.
Many people don’t like the market because they think it encourages short term thinking. For many companies, it does. They manage earnings. They worry about quarterly earnings calls and what they will say. They try to manage expectations and control the market as if it’s another part of their supply chain. They buy back stock. They become market paranoid.
Those are the companies that you sell.
Companies that read the market for what it is do better. The market becomes a one yardstick. Instead of trying to build a blow out company for angel and venture capital investors, great companies view the market as an opportunity to build a blow out company for millions of investors. Companies that internalize that view of the market become market gems for the ages.
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.
Jeffrey Carter is an angel investor and independent trader. He specializes in turning concepts into profits. He co-founded Hyde Park Angels one of the most active angel groups in the United States in April of 2007. He previously served on the Chicago Mercantile Exchange Board of Directors. He has done market commentary for (More...)
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