Twitter Inc. (TWTR) raised $1.82 billion in its initial public offering, seizing on surging investor demand to price at a more expensive valuation than rival Facebook Inc. (FB)
Twitter yesterday sold 70 million shares at $26 each, putting the microblogging service at 12.4 times estimated 2014 sales of $1.14 billion, according to analyst projections compiled by Bloomberg. That is higher than the 11.6 times that Facebook was trading at yesterday and similar to LinkedIn Corp. (LNKD) 's multiple of 12.2 times sales.
The pricing puts the onus on Twitter, which starts trading today on the New York Stock Exchange, to deliver on its promises of fast growth after earlier pitching shares as low as $17. Chief Executive Officer Dick Costolo has rallied investor interest in Twitter's rapid sales curve -- with revenue more than doubling annually -- even with no clear path to making a profit.
'People are really looking all the way out to their 2015 and 2016 revenue estimates to price this,' said Larry Levine, a partner in financial advisory firm McGladrey LLP in Chicago. 'The risk to buying Twitter is if Twitter does not achieve its very lofty growth estimates.'
Twitter's $1.82 billion IPO is almost as much as the $1.9 billion that Google Inc. raised in its 2004 IPO and makes it the largest IPO by a U.S. technology company since Facebook's debut in May 2012. It puts the market capitalization of Twitter at $14.2 billion, more than double that of Groupon Inc. Goldman Sachs Group Inc. (GS) led the sale, working with Morgan Stanley (MS) and JPMorgan Chase & Co. (JPM)
At NYSE
CEO Costolo will be at the NYSE tomorrow for the stock's debut under the TWTR symbol, along with CFO Mike Gupta. Twitter co-founders Evan Williams, Biz Stone and Jack Dorsey will also be in New York, according to a person familiar with the matter.
Lawrence Haverty, a fund manager at Gamco Investors Inc. (GBL), said $26 was a fair price.
'They could have gotten a higher price, and they chose not to because they didn't want to replicate the Facebook situation,' he said.
Twitter had sought to avoid the hype that surrounded Facebook's initial share sale last year, leading bankers to overestimate demand for its shares. Twitter filed for an IPO confidentially with the U.S. Securities and Exchange Commission earlier this year, and originally set an offering price range at a discount to its Internet peers.
Demand for the stock exceeded the supply even before bankers started formally asking for orders, people familiar with the matter have said. On Monday, Twitter raised the proposed price range for shares in the IPO to $23 to $25 each, up from the earlier range of $17 to $20.
Stoking IPOs
'When you see something with the user volume that Twitter has today and the engagement that they continue to have among their user base, you can confidently invest,' Matt Krna, a principal at Softbank Capital, which has a small stake in the company through its acquisition of Bluefin Labs, said before the final pricing. 'There was a period of skepticism over consumer technology after Facebook's IPO, and now people are running back.'
Twitter's IPO will be followed by consumer-Web companies including Zulily Inc., an online seller of apparel for moms and babies, and digital-education service Chegg Inc., which are set to debut next week. Care.com Inc., owner of a site used to find babysitters, plans to hold an IPO early next year, people familiar with the matter said in August.
'Twitter is every bit as prominent an IPO as Facebook,' said Ted Hollifield, co-head of the venture and merger and acquisition practice at law firm Alston & Bird LLP in Menlo Park, California. 'There will be a number of consumer-facing companies that would love to follow in their footsteps.'
High Value
Twitter will have 544.7 million shares of common stock outstanding after the IPO, its filings show. Including restricted stock and options, Twitter will have about 694.8 million shares outstanding. By that measure Twitter is valued at $18.1 billion. The sale doesn't include an extra 10.5 million shares that underwriters have an option to buy, according to the company's prospectus.
Twitter, whose website and applications let people post 140-character messages to friends and online followers, still needs to deliver on its business model. Twitter's loss widened to $64.6 million in the September quarter from $21.6 million a year earlier, and it is unlikely to be profitable until 2015, according to the average estimate of analysts surveyed by Bloomberg. LinkedIn and Facebook were both profitable at the time of their IPOs.
User Growth
While Twitter's revenue has surged, reaching $534.5 million in the 12 months that ended Sept. 30, user growth is slowing, filings show. The service had 231.7 million monthly users in the quarter that ended in September, up 39 percent from a year earlier. That compares with 65 percent growth in the prior year.
Twitter has been touting its engagement with mobile users, where other Web companies have struggled. About three-fourths of Twitter's active users accessed the service from mobile devices in the three months ended in September, compared with 69 percent in the year-earlier period, according to the filing. More than 70 percent of advertising revenue comes from those devices, a higher proportion than Facebook.
The money from the public offering will help Twitter build its business outside the U.S., where it got 77 percent of users yet only 26 percent of revenue in the third quarter. The company will also expand its infrastructure and work on products that will help it attract more users and advertisers.
Facebook's debut was plagued with technical snafus on the Nasdaq exchange -- something Twitter may be trying to avoid by listing on the New York Stock Exchange. Nasdaq OMX Group Inc. paid $10 million to settle charges that the malfunction violated securities laws.
To contact the reporters on this story: Sarah Frier in New York at sfrier1@bloomberg.net; Lee Spears in New York at lspears3@bloomberg.net
To contact the editor responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net
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