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Twitter IPO Buzz Hard to Ignore … But Investors Should Tune Out

The Twitter IPO watch is in full swing.

But whether investors should care about the social media giant and whether Twitter IPO rumors get media coverage is a very different discussion.

First, let’s not put the cart before the horse on a Twitter IPO. According to Wall Street experts, social media powerhouse Twitter is poised to top $1 billion in revenue next year. Ostensibly, an initial public offering is meant to raise capital for future growth, and Twitter seems to be doing just fine in that respect.

Also, Twitter CEO Dick Costolo has long downplayed IPO prospects with lines like “I’m in the middle of trying to run this business and build this business” and saying that IPO planning is “not the way I spend my time thinking about the company.”

But come on, let’s not be coy.

Facebook (FB) basically had no choice to go public, even if Mark Zuckerberg distrusted capital markets and Facebook was a powerful company on its own. That’s partially because initial backers of the company wanted to get paid — a sad reality of any Internet startup — but also because if Zuckerberg wanted to keep growing and take on tech giants like Google (GOOG), he would have to make Facebook’s war chest even more impressive.

Twitter is hardly the kind of company that would just settle for moving sideways, and a Twitter IPO would inject much-needed capital into the company for big ventures it could not pull off as a private company. Consider reports that Twitter is investing heavily in television, including a partnership with the NBA as well as a deal with Walt Disney (DIS) sports property ESPN.

Thus a Twitter IPO is likely in 2014, according to some experts, now that the company is approaching a ceiling on what it can do on its own. A number of job ads also have fueled speculation that the social media company is staffing up for an initial public offering.

Analysts peg the valuation of Twitter at around $10 billion.

There’s no doubt that Twitter is a powerful force right now. CNBC is currently pushing its #TwitterRevolution package all about the power of Twitter and social media’s impact on both politics, investing and society at large. Twitter has been used in political revolutions across the Middle East and as a kind of 21st century social club for people to talk about news, sports and pop culture.

But whether it’s a good investment remains to be seen. Facebook’s IPO proved to us the importance of examining the balance sheet, the risk of disruptive tech trends like the move to mobile and the power of investor sentiment.

So my advice is to tune out the Twitter IPO talk until there’s something of substance to talk about.

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Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.

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Comments
  • LisbethGyrl ®

    twitter is a scam, all it is is a virtual soapbox; with asshole cops;
    that take your soapbox for undisclosed amount of time.
    All it is is a
    social diversion.

    how do they expect to acquire value?
    Do they expect to reap the data-mining of what anon anonymity
    relishes? There is no advertisement…..

    “promoted” doesn’t count, it
    angers twitter users.
    Also, the suspension thing is BULLSHIT!!!

    Could you imagine if google didn’t let you have access to your gmail for a few days AFTER you pleaded via email? I would have dropped gmail; YEARS
    ago…

    twitter is a fad; that’s all it is. It is
    the 1%…. and you expect this to be worth billions? MAYBE in cash that
    you want to keep from Obama; nothing more… in my opinion.

    ~lisbeth