Facebook's IPO was one of the most hyped events in history. The media went wild in the weeks leading up to the offering, and investors were clamoring to get their hands on shares. This led to an unrealistic expectation of what the stock would do on its first day of trading. When the stock actually opened below its IPO price, investors were disappointed and the stock price plummeted.
Twitter took note of this and made sure to downplay the hype surrounding its own IPO. The company did not hold any public relations events or roadshows, and it did not issue any financial guidance. This helped to manage investors' expectations and prevented the stock from being overhyped.
Lesson 2: Price Your IPO Conservatively
Facebook priced its IPO at $38 per share, which was at the high end of its expected range. This proved to be a mistake, as the stock opened at $38.23 and then quickly dropped below its IPO price.
Twitter learned from this and priced its IPO at $26 per share, which was below the midpoint of its expected range. This helped to create more demand for the stock and allowed the company to raise more money than it would have if it had priced the IPO at a higher level.
Lesson 3: Have a Clear Post-IPO Strategy
Facebook did not have a clear post-IPO strategy. The company was still trying to figure out how to make money, and it was not clear how it would use the proceeds from the IPO. This lack of direction led to uncertainty among investors and contributed to the stock's decline.
Twitter, on the other hand, had a clear post-IPO strategy. The company planned to use the proceeds from the IPO to invest in product development, marketing, and user acquisition. This gave investors confidence that Twitter knew what it was doing and that it would be able to grow its business in the future.
Lesson 4: Be Prepared for Volatility
The stock market is volatile, and IPOs are especially risky. Twitter knew that its stock price would likely be volatile in the days and weeks following the IPO. The company prepared for this by building up a strong cash reserve and by having a plan in place to deal with investor relations.
This preparation paid off when Twitter's stock price did indeed experience volatility. The stock price dropped by more than 20% in the first few days of trading, but the company was able to weather the storm and the stock price eventually recovered.
By learning from Facebook's IPO flop, Twitter was able to successfully navigate its own IPO and avoid many of the pitfalls that Facebook encountered. This resulted in a more successful IPO for Twitter and helped to set the company up for long-term success.
