One social network's stock market debut is another's handbook on what to do and what not to do.
FORTUNE — With its stock currently hovering around $44, Facebook FB is sitting pretty now, but its public offering was anything but smooth. During the social network’s initial months on the stock market, it came under fire for what many argued was an overinflated valuation. Indeed, its troubled trajectory to becoming a publicly-traded company offers some valuable lessons for another company that announced this week it had filed a confidential S-1 with IPO intentions: Twitter.
“I’ve been very outspoken about staying private as long as possible,” Mark Zuckerberg remarked onstage at TechCrunch’s Disrupt conference this week, one day before Twitter’s announcement. “But in retrospect, I was too afraid of going public. As long as Twitter focuses on what they’re doing, I think it’s wonderful.”
Here’s what Twitter can learn from Facebook:
Set a modestly-priced company valuation. When Facebook debuted on the NASDAQ on May 18, 2012, there was excitement. The rapidly-growing social network Zuckerberg started in his Harvard dorm room, and which now claims 1.2 billion users, had finally arrived. To some the sky seemed the limit. But to many others, launching at $38 a share and a $104 billion valuation seemed exorbitant. That played out in the initial months, when Facebook stock plunged under $18 — less than half its price on day one. Pundits Fortune spoke with all agreed Twitter’s stock market potential could be vast, provided it goes public at a modestly-priced valuation. Not only does that give investors more potential upside, it also better manages employee expectations, says Douglas Weltman, an analyst for the business research firm PrivCo.
Keep it “confidential.” Ok, so Twitter already filed its S-1 confidentially. But it was a smart move regardless, according to experts. It keeps sensitive company information, like revenues, private for as long as possible, up until its roadshow. While it signals the company will likely go public in 2013 instead of 2014, it also means Twitter deals with less fallout if an IPO doesn’t happen. “Most companies when they do the confidential filing keep it confidential because they don’t want to risk the embarrassment if they decide not to go ahead with the deal,” explains Jay Ritter, professor of finance at the University of Florida.
Forget selective disclosure. Morgan Stanley MS , a Facebook IPO underwriter, agreed to pay Massachusetts regulators $5 million. Why? The investment bank put out a public filing that provided analysts with more detailed information about negative trends regarding Facebook’s mobile ad business. Other investors however, did not receive the same information and relied on broader information from Facebook’s regulatory filing. The ensuing hoopla arguably tainted the IPO proceedings even further. “If you’re going to let one investor know a piece of information, be sure to include that to all of them,” Daniel Robertson, CEO of IPO services firm Park Lane Capital companies, puts simply. The last thing Twitter needs as it transitions to a publicly-traded company is controversy, particularly one that results in a regulatory fine.
Stay heads-down. Facebook’s heavily scrutinized IPO could have caused an employee exodus similar to what happened after Zynga’s ZNGA offering in December 2011 — a fact Zuckerberg acknowledged at TechCrunch Disrupt. “I was really worried that people would leave the company and people would get demoralized as the stock price would go down, but people were really focused on the mission,” admitted Zuckerberg, who went on to say the experience actually strengthened the company.
Of course now, Facebook is in some ways stronger than it’s ever been. Mobile, a trouble spot for the company in the past, is currently booming: 41% of the social network’s ad sales now come from mobile versus the 33% Wall Street had projected for its most recent quarter. “What’s best for investors is if management focuses on operating the business and doesn’t worry about what’s happening to the stock price on a day-to-day business,” Ritter explains. Basic, but valid advice, nonetheless.