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Twitter Times IPO as Facebook's Fortunes Rise

As It Preps to Go Public, 140-Character Company Less Likely to Be Plagued by the Mobile Doubts That Lingered Over Last Year's Marquee Debut

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Twitter's announcement that it had filed for an initial public offering on the same week Facebook's stock hit an all-time high looks like more than just an interesting coincidence.

Though Twitter would be loath to admit it, its ability to successfully launch as a public company is significantly tied to Facebook, since the market has learned to use Facebook's performance to evaluate the business of social-media advertising.

From that perspective, Twitter was wise to wait until the storm around Facebook's botched May 2012 IPO cleared. Facebook's stock price topped $45 last week, an impressive turnaround from last September when it traded well below $20.

Twitter has already answered one question that dogged Facebook in the run-up to its IPO: By eMarketer's projections, 53% of Twitter's ad revenue will come from mobile this year.

Mobile was arguably the biggest perceived weakness in Facebook's business model when it filed to go public, but it's turned into a strength. Sales of ads in users' mobile news feeds made up 41% of Facebook's ad revenue in the second quarter, and marketers are hungry to be in front of its mobile-app users.

According to an August survey of 1,200 Ad Age subscribers done in conjunction with RBC Capital Markets, 75% of respondents said marketing on Facebook's mobile apps was "very" or "somewhat" important, up from 67% in a similar January survey. Meanwhile, 56% expected their Facebook ad budgets to grow during the next year.

Twitter's revenue growth since getting its ad business off the ground in 2010 is still unknown. Its decision to file confidential paperwork to the Securities and Exchange Commission for its IPO under provisions of the Jumpstart Our Business Startups (or JOBS) Act means that it's not obliged to reveal its financials to the public until 21 days before its road show for potential investors.

But even without knowing the details, its mobile-ad business is clearly better-positioned leading into its IPO than Facebook's was. Days before Twitter's filing, it bought mobile-ad exchange MoPub for $300 million—its biggest acquisition to date. MoPub will help Twitter generate ad revenue throughout the mobile-app ecosystem.

And while Facebook reinvented its ad business in early 2012 -- introducing news-feed ads and essentially steering marketers away from placements along the right side of the website -- Twitter's core ad product has been served in users' streams since its inception.

"The [promoted tweet] works everywhere because the user experience is effectively identical everywhere," said Nate Elliott, principal analyst at Forrester Research.

That continuity, along with its mobile business, puts Twitter in a strong position relative to where Facebook started as a public company. But Facebook was able to lean heavily on one strength as it courted public investors that's an area of vulnerability for Twitter: its user base.

Twitter claims 200 million monthly users, leading to the perception that it's a niche property that will never gain traction with a broad audience. By comparison, Facebook has 1.15 billion monthly users and likes to make the assertion that one of every seven people in the world use it.

The difference in the companies' sizes -- in terms of users and revenue -- is the basis for an argument that Facebook's performance doesn't have any bearing on Twitter. Facebook went public at a valuation of $100 billion, while Twitter is expected to come in between $15 billion and $20 billion.

CORRECTION: An earlier version of this article stated that Twitter filed for an IPO last week. Though it publicly announced via a tweet last week that it had filed, the actual date of the filing with the Securities and Exchange Commission has not been confirmed due to the confidential process in which Twitter participated. We regret the error.

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