Twitter IPO: 5 Things That Could Go Wrong

Source: Twitter.

The markets are gearing up for what could be one of the biggest IPOs all year. Twitter could go public as early as November 15.

But not all IPOs go without a hitch. Here are five things that could go wrong:

1. Your mom doesn't use it
Remember the Facebook  (NASDAQ: FB  )  IPO? It was one of the most closely watched IPOs in recent memory. Everyone from investment bankers to stock market novices were talking up the first-day potential. Even people who ordinarily have very little to say about investing, like personal finance "expert" Dave Ramsey, issued warnings to investors about buying Facebook shares at IPO.

Twitter isn't like Facebook, though. It has substantially fewer users, and the users it does have are younger -- the people you wouldn't expect to have huge brokerage accounts. Twitter and its bankers could easily overshoot on the number of people who will want to buy the stock when it lists.

2. The SEC may tear up its filings
Twitter's disclosures have already come into question. The company reports that roughly 5% of its users are fake accounts. But some are saying the number is much higher than that. Fake accounts are all over Twitter, used to do everything from driving up follower counts on promotional Twitter pages to filling up the site with #blogspam.

Groupon saw what happens when the SEC doesn't like the way you file your paperwork. The company lost much of its value as the regulatory agency called many of its disclosures and accounting policies into question. Twitter will want to avoid the same inspection pre- and post-IPO.

3. People might realize it's, you know, losing money
When Twitter goes public, it will do so as an unprofitable social networking company. Its revenues are growing at an obscene rate, but its profits are nowhere to be found. Depending on the size of the initial public offering, Twitter may have to come back to the markets to issue new shares to raise more capital, diluting shareholders in the process.

It remains to be seen whether Twitter can turn a profit. If it can't, expect another dilutive offering after its IPO. That could send shares plummeting just months after it lists on the stock exchanges, unless Elon Musk joins the board of directors at the same time. His magic touch seems to send any stock rocketing on a secondary offering.

4. A leading exchange may goof up once again
Nasdaq ultimately paid $10 million to settle its mismanagement of the Facebook IPO because technical glitches kept many from buying the stock, and many more investors from knowing just how much they purchased. The Nasdaq wasn't ready for the nearly half-million orders that hit the exchange at the opening at 11 a.m.

There's no word yet on which exchange will win over the Twitter IPO, but if the chosen exchange can't handle a big IPO, Twitter shares could take a dive like Facebook's did following its IPO.

5. It may lose its status as a "cool" site online
I use Twitter. I'm also a perennially late adopter. I didn't have an iPhone until Apple's stock price was well off its $750 high. Heck, at one point I owned and used a Microsoft Zune, and had a Blackberry all the way up to 2010.

Beware: Anything tech I seem to touch turns immediately uncool. Of course, I jest about my own personal preference's impact on a business, but if Twitter loses its status as a "cool" place to be online to emerging messaging services, its future may not look as bright.

Beyond the IPOs
One home run investing opportunity has been slipping under Wall Street's radar for months. But it won't stay hidden much longer. Forward-thinking energy players like GE and Ford have already plowed sizable amounts of research capital into this little-known stock... because they know it holds the key to the explosive profit power of the coming "no choice fuel revolution." Luckily, there's still time for you to get on board if you act quickly. All the details are inside an exclusive report from The Motley Fool. Click here for the full story!


Read/Post Comments (1) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 13, 2013, at 12:32 PM, lovethecool wrote:

    I liked your article, but tricking people into watching that terrible, dull, overselling presentation without letting the user know how long they were stuck there reminds me of horrible user experience mistakes of the early 2000s. No respect. You totally wasted my time. I finally turned it off when I realized you weren't going to tell me the name of the stock, possibly til the very end - possibly never.

    You guys seem like snake oil salesman now.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2678829, ~/Articles/ArticleHandler.aspx, 8/21/2014 5:22:23 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement