Does Twitter Have an Unfair Advantage?
On the surface, the financial terms of Twitter’s (NYSE:TWTR) initial public offering bespeak a far different beginning to life as a public company than those of Facebook (NASDAQ:FB) conditions. That company was extended a credit line of $8 billion and its IPO raised $16 billion, of which the underwriting banks received 1.1 percent in fees. Comparatively, Twitter is going public for a sum of $1 billion, with an underwriting fee of 3.25 percent and a credit line of $1 billion.
Twitter looks “much more like a venture growth company” to James Gellert of the credit-research and rating firm Rapid Ratings than its social networking peers LinkedIn (NYSE:LNKD) and Facebook, both of which managed to turn profits before going public.
Comparatively, the 140-character micro-blogging site generated revenue of $317 million last year and lost $79 million. “There’s a lot being bet on Twitter’s ability to achieve things in the future, rather than a historical demonstration of that ability,” Gellert concluded in an interview with the Wall Street Journal. The fact the company is still very small and has spend quite a lot on new products recently makes it a risky recipient of credit for the underwriting banks of Twitter’s IPO.