Twitter Inc. (TWTR:US) has the potential to pry open the door for consumer-Internet initial public offerings after it slammed shut following Facebook Inc.’s troubled share sale last year.
Zulily Inc., an online seller of apparel for moms and babies, and digital-education service Chegg Inc. are set to debut next week. Care.com Inc., owner of a site used to find babysitters, plans to hold an IPO early next year, people familiar with the matter said in August.
Consumer companies are lining up to tap the public markets now that the taint of Facebook’s offering, which was marred by a computer malfunction and followed by a slump in the stock, has faded. In the 18 months since Facebook’s IPO, only three U.S. consumer-Web companies have held IPOs, with other startups such as Airbnb Inc. and Evernote Corp. putting off share sales. Twitter could accelerate the current momentum -- or kill it.
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“Twitter is every bit as prominent an IPO as Facebook,” said Ted Hollifield, co-head of the venture and merger and acquisition practice at law firm Alston & Bird LLP in Menlo Park, California. “If this offering is successful, there will be a number of consumer-facing companies that would love to follow in their footsteps.”
Should Twitter sell shares at the top end of its projected range, the San Francisco-based company will raise $1.75 billion today at a $13.6 billion valuation. It’s the biggest U.S. technology IPO since Menlo Park, California-based Facebook raised $16 billion (FB:US) in May 2012.
The owner of the world’s largest social network plunged (FB:US) by half in its first three months on the market, capping a run of consumer-Internet IPOs that started in mid-2011 with LinkedIn Corp. and Pandora Media Inc. Kayak Software Corp., a travel search engine, delayed its offering, pushing it out until July of last year.
Since Kayak, the only consumer-Web companies to go public in the U.S. before this week were Trulia Inc. in September 2012 and RetailMeNot Inc. in July of this year. Those three companies raised a total of about $440 million -- a quarter of what Twitter may reel in. Wix.com Ltd., an Israeli provider of online tools for building websites, debuted on the Nasdaq today.
Renaud Laplanche, chief executive officer of online-lending site LendingClub Corp., said he’s considering mid-2014 for an IPO, though his company hasn’t settled on a time frame. While he’s watching Twitter, the more important offering will be China’s Alibaba Group Holding Ltd., the Chinese e-commerce company.
Alibaba, valued by investment banks at as much as $190 billion, is moving toward a U.S. IPO, according to people familiar with its plans. San Francisco-based LendingClub connects lenders with borrowers, a business model that’s more akin to Alibaba’s, Laplanche said.
“Alibaba is a transactional business and marketplace, so it’s more relevant to us,” Laplanche said. Twitter “is certainly a real event, but the real event to us will be Alibaba.”
Some companies are already on the docket. Chegg, which is scheduled to sell shares on Nov. 12, filed to raise $198.4 million. Zulily, slated for an IPO two days later, said Nov. 1 that it plans to raise $238.1 million. Care.com hired Morgan Stanley to lead its IPO and is aiming to raise about $100 million next year, people with knowledge of the matter said.
Others may have filed confidentially under the Jumpstart Our Business Startups, or JOBS, Act, which allows companies with less than $1 billion in revenue to keep their financials quiet until three weeks before marketing the offering to investors.
Venture capitalists like Jeff Clavier expect the Twitter effect to be muted. Clavier, founder of venture firm SoftTech VC in Palo Alto, California, said that the mass popularity of Twitter puts it in a class by itself.
“Twitter is such a household name -- everyone knows about Twitter,” Clavier said. “Not many companies have that brand recognition.”
Still, Silicon Valley is teeming with speculative Internet businesses like Twitter sporting lofty valuations based on their ability to make money in the future. Dropbox Inc., a provider of Web storage and document-sync technology, raised money at a $4 billion valuation in 2011. Pinterest Inc., an online bulletin board, was valued at $3.8 billion last month.
Room-sharing service Airbnb and note-taking application Evernote are also valued in the billions. Executives from both companies said after the Facebook IPO that they were content waiting for a more amenable environment to tap the market.
Representatives from Dropbox, Pinterest, Airbnb and Evernote didn’t respond to requests for comment.
If Twitter fails to deliver, it will mark yet another top-dollar flop. Since Google Inc.’s IPO almost a decade ago, the biggest U.S. consumer-Web deals have been Facebook, Groupon Inc. (GRPN:US) and Zynga Inc. (ZNGA:US) It took Facebook more than a year after its IPO to recoup its losses, while Zynga and Groupon are still at least 50 percent below their debut prices.
“None of them were great bets for public investors,” said Jeremy Levine, a partner at Bessemer Venture Partners and a Pinterest board member. “Can Twitter finally buck the trend?”
That’s the $13.6 billion question.
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