The Twitter Inc. executives leading its long-expected initial public offering have a mission: Don't repeat the mistakes that muddied Facebook Inc.'s FB -0.99% IPO.
Endpoint Technologies Founder and President Roger Kay discusses challenges facing Twitter in winning Wall Street's favor as it prepares an IPO filing. Photo: Getty Images
While the two social networks offer services that increasingly overlap, Twitter executives have put distance between themselves and their rival in the lead up to an IPO. Among its efforts, Twitter has acted conservatively in building a business case for advertising on its short-message service, kept remarkably quiet about its IPO process, and notably picked a different lead banker for its offering, Goldman SachsInc. GS +0.40%
The goal, according to a person familiar with the board and senior executives' thinking, is to make Twitter's IPO a contrast to Facebook's botched offering, after which its stock fell following its May 2012 IPO. The moves could help Twitter be taken seriously both by investors and by marketers as it tries to become an online advertising juggernaut.
A Twitter spokesman declined to comment.
It isn't yet clear how Twitter will price its stock at its debut. The current thinking among Twitter's leadership, people familiar with its thinking say, is to be more conservative than Facebook.
Twitter wants to avoid overpricing its shares or offering too many, as it looks to models from tech companies LinkedIn Corp. LNKD -0.04% and Workday Inc.,WDAY +0.55% both of whom saw their stock soar after their debuts, according to a person familiar with the board's thinking. One of the people, however, said Twitter also doesn't want to leave too much money on the table.
On Wednesday, before Twitter's disclosure, Facebook Chief Executive Mark Zuckerberg joked at a conference that he would be the last person to advise Twitter executives on "how to make a smooth IPO."
Before Facebook's IPO, executives increased the size of its offering and the price, despite some internal concerns about the strength of its ad business. While the offering was also haunted by technical challenges on the NasdaqNDAQ -1.66% market, some critics blamed the stock's challenges on greed among Facebook's management.
Twitter chose Goldman Sachs Group Inc. as the lead underwriter for its offering, over the Morgan Stanley MS +0.39% team that advised Facebook, according to people familiar with the decisions. Twitter is in the process of discussing which additional banks will be involved in the process, according to those people. A number of other banks are already in the mix, including Morgan Stanley, Bank of America Corp.'sBAC +0.07% Merrill Lynch and J.P. Morgan Chase JPM +0.67% & Co., who had leading roles on LinkedIn's IPO in 2011, and Deutsche Bank AG, DBK.XE +0.93%which worked on Facebook's IPO they said.
The discussions with the banks also include possible extensions of credit to Twitter, people familiar with the talks said. Twitter would use the loans for general working capital and to pay taxes incurred when employees' stock options vest, one person familiar with those discussions said. In this respect, Twitter's IPO process appears to mirror that of Facebook, which secured similar credit lines ahead of its own IPO last year.
For years, Twitter's management has been careful to avert the pitfalls of its larger rival.
![[image]](http://si.wsj.net/public/resources/images/BF-AF778_TWITTE_NS_20130913182104.jpg)
While Facebook's stock traded aggressively in the secondary market, Twitter made efforts to tame its own. From early on it prevented sales by shifting to granting restricted stock units to employees, according to people familiar with the company's practices.
Twitter actively exercised the right of first refusal in stock sales to funnel shares to a cherry-picked group of preferred buyers, which include veteran technology investors Ron Conway, Chris Sacca and Joi Ito. When it allowed investors to buy shares, Twitter also pushed them to agree to hold on to those shares for a long time, according to one person with knowledge of the transactions. The rampant trading on Facebook, exacerbated by the number of owners, pushed the company against a federal rule that requires financial disclosure once a company has more than 500 shareholders.
Twitter has also done a better job at keeping secrets. While details about Facebook's IPO trickled out in advance, Twitter's filing was kept secret, taking many industry watchers by surprise on Thursday when Twitter announced via its own short-message service that it had filed confidential papers with the Securities and Exchange Commission to begin the IPO process.
"They kept it pretty tight lipped," said one banker who has discussed an IPO with Twitter in the past and was surprised to read the company's disclosure in a tweet.
In timing its offering, Twitter is telegraphing a different message than Facebook about its revenue growth prospects.
At the time of its offering, Facebook had hit a plateau as it struggled with the transition to mobile ads, disappointing investors. It had more users at the time—close to a billion—but its IPO was clouded by concerns that it wouldn't be able to make as much money from users on mobile devices.
But by all external indications, Twitter's ad revenue continues to grow, particularly on mobile devices. Twitter's revenue is sealed inside its confidential filing, but analyst firm eMarketer expects its ad revenue grow to a little under $1 billion next year, up from about $583 million this year. It also purchased MoPub earlier this week for $350 million, a mobile advertising firm that sells ads across a broad swath mobile of properties, giving Twitter a revenue stream beyond its own services.
Even as its user base has surged to 200 million monthly users, Twitter has taken its time to build up its business and its decision to go public. "The thinking was, don't open a fine wine until its time," said one person familiar with the matter.
Twitter recently said it experiments with a new feature or product every day. Yet in the last three years, it has only rolled out three types of ads. Meanwhile, Facebook has introduced a flurry of different types of ads over the past year, generating a new revenue but also fanning concerns that more and more ad products could eventually alienate its user base.
"They're not just throwing everything they think of at them [the users] like Facebook," said Nate Elliott, an analyst at Forrester.
