Twitter: 2014 IPO or Acquisition by Apple?

Many analysts have been speculating about Twitter’s IPO prospects, and the company itself seems to have toyed with the idea of going public (or not) more than a few times. Last year it even indicated that it will remain an independent company for years to come. But after a few months of silence, the market is again abuzz with news that Twitter may be preparing for an IPO scheduled for 2014. Analysts believe that Twitter’s recent management restructuring may indicate the company’s desire to become public. Last month, Twitter moved Ali Rowghani, CFO, to the COO position. Newly hired Mike Gupta, a former Zynga treasurer, took the CFO position.

Twitter’s Growth
Twitter has been on a fast-paced growth run in the recent months. Its subscriber base may not be anywhere close to Facebook’s more than 1 billion users, but it is broadening steadily nonetheless. In an announcement last month, the company declared that the number of active users surpassed 200 million on a total subscriber base of more than 500 million. Twitter’s user base include tweets from world leaders and celebrities like the pope and Brazilian footballer Pelé. It was also a leading place to catch up on news about the U.S.’s recent presidential elections.

Twitter’s financials and operational metrics are still largely unknown. But on expectations that the company will generate more than $1 billion in revenues by 2014, its valuation has skyrocketed. According to a Forbes report, Twitter is now valued at more than $11 billion. In 2011, it was expected to be worth $8 billion.

Twitter and Facebook Compete
Facebook and Twitter have obviously been competing with each other to get a bigger piece of the social media pie. Following the acquisition of Instagram by Facebook, competition between the two companies has only increased. Twitter was rumored to be in talks with Instagram for the acquisition, but ultimately lost the race to Facebook. A report by comScore published in August 2012 showed that Instagram attracted 7.3 million daily active users in the U.S. compared with Twitter’s 6.9 million. Also, Instagram users spent 257 minutes online, compared with 170 minutes spent by Twitter users via their mobile devices. Twitter is focused on capturing that market from Instragram.

Since the acquisition, both Instagram and Twitter have modified features to attack each other’s user interface. Instagram reportedly removed its integration with Twitter cards so that photos uploaded from Instagram will not be as clear on Twitter. In retaliation, Twitter put in API restrictions so that Instagram app users will no longer be able to connect with their Twitter friends through the Find your Friends feature. Twitter also went on to develop a photo filter app that enables users to edit apply filters to their photos within the app. These photo filters include features that display photos in black-and-white, or give them a vintage look, and they come with a “bird’s-eye view” mode that shows in a grid view how a photo would change.

Last summer, Twitter entered into similar disagreement with LinkedIn and ended their partnership. As part of the break-up, users were no longer able to sync updates from either site. The partnership let any post that was uploaded to LinkedIn be sent to the user’s Twitter profile or Twitter search with tweets using that hashtag, which helped marketers and recruiters in linking and managing their campaigns. Analysts believe that Twitter cut the cord because LinkedIn was able to use Twitter’s API to channel tweets onto its services, thus taking away consumer eyeballs to its own site.

Twitter is focusing on increasing user engagement on their site. While it has maintained silence on an exit strategy, a few analysts also believe that despite Twitter’s valuation, it may be a good acquisition target for players like Apple, which still does not have a strong social media strategy.

In the months to come, Twitter’s management should provide more clarity on its financial performance and future plans. Till then, I still have doubts about the $11 billion valuation, which, I think, would be very difficult to sustain in the public market. However, Apple can afford to pay something outlandish to get its hands on a juicy asset like Twitter. For Twitter’s investors, this may be the most lucrative outcome.

This segment is a part in the series : Twitter