Twitter will try not to follow other social networks’ failures

Twitter is the latest social network to go public, but recent history shows Silicon Valley and Wall Street don’t always mix so well.

Twitter Inc. announced plans late last week to hold an initial public offering, hoping that its Internet success won’t be limited to 140 characters.

“We’ve confidentially submitted an S-1 to the [Securities and Exchange Commission] for a planned IPO. This Tweet does not constitute an offer of any securities for sale,” the popular microblogging site tweeted Thursday to more than 23 million faithful followers around the world, though it didn’t mention when the IPO will take place or how many shares will be offered or at what price.

Twitter’s initial public offering will no doubt generate buzz from investors who want to “follow” the company’s success to Wall Street. But as Facebook Inc.’s failed IPO last year demonstrated, the Silicon Valley is not nearly as popular with bankers as it is with Internet users.

Why? Because the social media giants that rule the Internet tend to struggle to turn a profit offline when they step into the financial markets. The challenge for Twitter will be finding ways to monetize its business model.

“Twitter will want to avoid that embarrassing IPO that Facebook went through,” said Jeff Kagan, an Atlanta-based technology analyst.

Facebook’s IPO was touted as the biggest of its kind since Google Inc. went public a decade earlier, but the stock immediately disappointed investors who were hoping to strike gold by betting on the world’s largest social network. But Facebook’s stock failed to live up to the hype during the company’s first year on Wall Street, though it has rebounded considerably in recent months.

On the first day of trading, it closed near where it started at $38 but fell below $20 in the next few months. Today, it is trading around $44, which is an increase over the IPO price but still a far cry from the inflated $60- to $100-per-share prices that some investors were anticipating.

“It took Facebook more than a year to recover. Fortunately, they have seemed to recover. So all is not lost,” Mr. Kagan said.

LinkedIn is a rare example of a social network that has done well on Wall Street, though even its stock had to deal with inflation early on that stemmed from the same sort of overexuberant investors who are characteristic of such social media companies.

LinkedIn set its IPO price at $45 a share, but the excitement surrounding it meant that the stock began public trading on May 19, 2011, at $83 and rushed up to $122 during the first day of trading. Shortly thereafter, LinkedIn shares plunged to about $65.

The good news is the stock rebounded over time, and is now trading around $250 a share.

Then there are the heavily hyped social-network companies that have done poorly and never rebounded. For example, Groupon Inc. opened at $28 on Nov. 4, 2011, and jumped to $31 on the first day of trading, but is now below $12.

But Mr. Kagan believes that Twitter can succeed if it learns from its predecessors.

“While the Facebook threat is still there, I think Twitter will learn from Facebook’s mistakes and this IPO will be much stronger,” Mr. Kagan said.