Nov 07, 2013

    Twitter madness: US$25 and going up


    TWITTER Inc is poised to price its initial public offering at a valuation that makes it more expensive than Facebook Inc, a profitable rival with five times as many users.

    Twitter yesterday boosted its IPO price from US$23 (S$28.60) to US$25 a share, which would give the microblogging service a market capitalisation of US$13.6 billion at the top end of the range.

    That would value the company at 11.8 times its estimated 2014 sales, higher than the 11.4 times price-to-sales ratio for Facebook.

    San Francisco-based Twitter is already several times oversubscribed at US$25 a share and is set for a final offering price above that, people familiar with the situation said.

    The price increase underscores how Twitter, which had a conservative IPO strategy relative to that of some Internet peers, is starting to shed that approach.

    The company initially set a range that put it at a 27 per cent discount to Facebook on a price-to-sales basis, yet is now creating a higher bar for success by forcing prospective investors to pay an even larger premium for its promises of fast growth.

    "A tech IPO like Twitter with no profit is an emotional event, not a fundamental event. You either believe or you don't," said Mr Max Wolff, chief economist and strategist at ZT Wealth.

    "Above $26, I think this thing starts to look a little dicey."

    Twitter previously took steps to avoid the hype that befell the IPOs of Facebook, Groupon Inc and Zynga Inc. Facebook, which raised its offering price range in the run-up to its IPO in May last year, saw its shares lose more than half their value within three months of going public.

    By contrast, Twitter filed its offering prospectus secretly with the Securities and Exchange Commission, and spelled out more risk factors than Facebook.

    Twitter also chose to list on the New York Stock Exchange, instead of the Nasdaq Stock Market where Facebook trades.

    Still, while Facebook was profitable when it went public, Twitter lost US$64.6 million in the September quarter, wider than the US$21.6 million a year earlier.

    The company, which didn't give a target for profitability, isn't anticipated to make money until 2015, according to analysts' predictions compiled by Bloomberg.

    In presentations to investors last week, chief financial officer Mike Gupta justified why Twitter is a worthwhile investment. He forecast adjusted earnings excluding interest, taxes, stock-based compensation and other measures - known as adjusted Ebitda - to reach 40 per cent, up from 6 per cent in the third quarter.

    For Twitter, there may be no better time to go public than this week.

    The company will debut on the stock market as the Standard & Poor's 500 Index is near a record high and two other social-media stocks - Facebook and LinkedIn - have each more than doubled in a year.

    IPOs are benefiting from the euphoria, as investors pushed the Bloomberg IPO Index to a record on Tuesday. That may help buyers overlook Twitter's losses and slowing user growth.