As noted in this column in July, the biggest Internet IPO on the horizon will come not from the San Francisco-based social media startup but from Alibaba Group Holding Ltd., a fast-growing e-commerce company with headquarters on mainland China.
Earlier this year, Alibaba signaled it would offer its shares on the Hong Kong Stock Exchange, which last month celebrated 20 years of accepting such listings from mainland companies.
But Alibaba's plans for a listing in the former British colony have hit a major snag, as exchange officials there rejected its proposed ownership structure, saying it violates rules that protect the rights of ordinary shareholders.
The company's failure to get the rules exemption it asked for in Hong Kong makes it more likely Alibaba will list its IPO shares in New York instead.
Such a move would very likely push a U.S. listing by Alibaba into the first or second quarter of next year, as it would take time for the company to clear regulatory hurdles and adjust its accounting to conform to U.S. rules.
It would also put the offering in competition with Twitter's — if the U.S.-based firm hasn't executed its IPO by then.
Alibaba is at least several times the size of Twitter, as measured by revenue.
According to figures made public in July by Yahoo, which owns approximately 24% of Alibaba, revenue for the China-based firm soared 71% to $1.38 billion for the quarter ended in March.
That size and rate of growth suggests the company will post 2013 revenue of more than $5 billion, though we won't know for sure until Alibaba discloses its financial statements.
Twitter also hasn't yet disclosed details of its business, choosing instead to file its initial registration statement with U.S. securities regulators on a confidential basis.
Yet such a filing — made possible by ! changes to U.S. securities laws under the 2012 JOBS Act — is available only to companies with annual revenue of less than $1 billion in their most-recently completed fiscal year.
Research firm eMarketer estimates Twitter's advertising revenue will double this year to $583 million, then rise 63% in 2014 to $950 million.
John Shinal, technology columnist for USA TODAY.(Photo: USA TODAY)
That makes it significantly smaller than its largest rivals in the market for Internet advertising — namely, Google and Facebook, which eMarketer estimates will capture 33% and 5%, respectively, of the $118 billion market this year.
Twitter's smaller size points up the risk the company has taken by signaling its IPO intentions in a tweet on its own site, without divulging any details of its financials — or of its potential offering.
While the tweet regarding its confidential IPO filing has helped generate interest — and allows Twitter to highlight pre-IPO shares to prospective employees — a delay in executing the offering might be seen by investors as a sign of potential problems.
If Twitter plans to raise money to help it compete with larger, well-funded rivals, doing it sooner would be better.
That's because the time between Thanksgiving and tax day on April 15 has been a graveyard for previous tech IPOs. Zynga's lackluster offering in December 2011 is a prime example.
If Alibaba decides to list its IPO on the New York Stock Exchange, as Twitter is reportedly considering, any significant delay by Twitter could put its share sale in direct competition with an even larger one in the minds of Internet-sector investors.
For all of these reasons, look for the Twitter IPO to be priced in the n! ear futur! e.
John Shinal has covered tech and financial markets for 15 years at Bloomberg, BusinessWeek, the San Francisco Chronicle, Dow Jones MarketWatch, Wall Street Journal Digital Network and others.
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