Twitter announced on October 3rd, 2013 that it plans to raise $1 billion US through its public offering. However, the timing and the price shares are not released yet. Every year, Twitter has been in a deficit as in the early months of 2013, it had a lost of $69.3 million. This meant that the company has accumulated $418.6 million of deficit in between last year and this year. Is Twitter doing the right thing? Will it receive its desired results from this plan?
Twitter seems to be doing something very unusual. It is expecting people to buy its shares when its company has been in deficit ever since it was started up. This company has never made money and is in debt. The question is, will people buy shares for a company that doesn’t make money? Maybe people will; however, it is not rationale. According to an economics theory, people aim to maximize their benefits or in other words, utility maximization. I personally do not think people will buy the shares just because the company is in some financial problems. People want to make money; they want to feel stable and Twitter just does not seem to give off that vibe. There is no incentive for people to buy the shares that it will soon offer to the public.
Despite what I think, there has to be some reason as to why Twitter is coming up with such a plan. There has to be some kind of a hidden profitable plan that I do not see or understand. Perhaps, Twitter is trying to overvalue itself to attract people to its shares or trying to make shareholders feel safer; either way, I personally think that Twitter’s upcoming plan seems unreasonable.
Source: http://www.cbc.ca/news/business/twitter-ipo-details-raise-questions-over-financials-bots-1.1912936