Will Twitter’s stock market flotation prove successful?

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Twitter has announced plans to join the stock market. It hasn’t said when, but already there is much debate about how successful this move will prove to be. It will be the biggest social network to go public since Facebook in May 2012.

The Facebook flotation is an interesting one to look back on, because while there was enormous hype at the time, the share price halved in the first six months and has only recently climbed back above its initial $38 price. The story was similar following the initial public offerings for both Zynga and Groupon.

Stock market reality

The issue with Facebook in particular was that while it is unarguably a hugely influential platform, investors questioned the valuation and sustainability of the business. In straightforward terms, it was hard to see how the vast user base equated to revenue. This is a recurring theme when it comes to large internet firms, which often earn an enormously high profile without actually having much of a business model.

However, Twitter may find cause for optimism in the reasons behind Facebook’s recent resurgence as it has largely been built on an upturn in mobile advertising. Mobile ads now account for 41 per cent of total revenue and the firm expects it to soon surpass revenue from desktop ads.

Twitter is arguably even better placed to exploit this market as it is increasingly accessed by mobile users and furthermore is extremely well-suited to such devices. However, it only introduced its advertising model in 2010 and as you would imagine, there have been difficulties balancing profits with the impact on user experience.

Advertising

Marketers can now pay to have their tweets placed prominently on timelines or ads can be placed within the list of geographically-targeted popular topics displayed to each user. Such changes aren’t popular with those who use the website, but that’s the perennial challenge for any firm looking to increase ad revenue – where advertisers want to be is precisely where users don’t want them to be.

This is often where huge internet success stories slow down. The addition or wider use of advertising applies a handbrake to momentum which has been built through providing users with something wholly geared towards them and their needs.

Twitter can expect to increase ad revenue from $582.8m this year to $950m in 2014 according to an estimate by research firm EMarketer. That may seem enticing to investors, but are those figures realistic? Online advertising involves making compromises and these tend to come with consequences.