Twitter to hit Wall Street with hefty price tag

Published November 7, 2013
- File Photo
- File Photo

NEW YORK: Twitter will make its Wall Street debut Thursday with a price tag of $26 per share, bidding to raise up to $2.1 billion in the most eagerly awaited stock offering since Facebook.

A tweet from the company said it would offer 70 million shares on the New York Stock Exchange, generating $1.82 billion, and give underwriters a 30-day option to purchase an additional 10.5 million shares of common stock.

The initial public offering (IPO) assigns a market value of around $14.4 billion to the company whose messaging service has become a hugely popular tool for celebrities, journalists, political leaders and others.

With the over-allotment it should be the second-biggest tech IPO after Facebook's $16 billion effort last year and ahead of Google's 2004 offer, which raised $1.92 billion, according to research firm Dealogic.

Depending on the outcome of the common stock offer to underwriters, between 12.8 and 14.5 per cent of the company's shares will be publicly traded. The rest is held by its founders and a handful of early investors.

Twitter has fast become engrained in popular culture but must still convince investors of its business model, having lost more than $440 million since 2010. Memories of Facebook's botched offering will also abound Thursday.

But with 232 million users and growing, Twitter is expected to be able to reach profitability by delivering ads in the form of promoted tweets, and from its data analytics.

The research firm eMarketer estimates Twitter will bring in $582.8 million in global ad revenue this year, and nearly $1 billion in 2014.

Eden Zoller at the British-based consultancy Ovum said Twitter needs to show it is executing its business plan to reassure the market.

“Investors see social media and mobile as sweet spots and it is therefore no surprise that Twitter's IPO is creating so much excitement and is oversubscribed,” she said in a research note.

“Twitter needs to step up and deliver on the expectations that are fuelling its valuation, and show that it has what it takes to provide a sustainable business model.”

Zoller said it was key “to keep users engaged while driving advertising revenues,” and that “Twitter will need to innovate in both services and advertising.” Mark Mahaney at RBC Capital Markets recommended the stock with a target price of $33, saying it may become “the next Internet utility.”

“Just as Google, Amazon and Facebook have become Internet utilities, so too may Twitter,” he said in a research note.

“As a public, real-time, conversational and distributed platform, Twitter is becoming an essential service for consumers, businesses, media companies, and advertisers. Twitter is where events, information, ideas, and fads get reported, purported, distributed, and exploited.”

Twitter gets most of its revenue from advertising in the form of “promoted tweets,” but has only been doing this for about three years, and the model is not fine-tuned, said Nate Elliott at Forrester Research.

“Marketers' most common objective on Twitter is to build brand awareness. But consumers are most likely to become a fan or follower of a company in social media after they've already bought from that company,” Elliott wrote on a blog.

“Twitter must do more to support marketers. Twitter's marketing business is still relatively young...but that business must mature quickly.”

Other analysts are sceptical, saying the company's model is unproven and that social media trends are too unpredictable to justify its high valuation.

A report by investment firm Sterne Agee said Twitter is valued more than 50 per cent higher that its “high growth peers” including Facebook, LinkedIn and Yelp.

Pivotal Research said it sees Twitter as “a highly volatile security,” but said it “will probably maintain an upward trajectory” unless it stumbles.

Victor Anthony at Topeka Capital Markets said he expects Twitter to grow faster than most expect, and set a $54 price target for the stock.

“A look back shows that consensus has underestimated social media financial performance,” Anthony said in a note to clients. “Hence, we stand by our numbers.”

As the IPO hits Wall Street, another offering appeared on the horizon from Square, led by one of Twitter's founders, Jack Dorsey, according to the Wall Street Journal.

The newspaper said the mobile payments platform was in discussions for an IPO which could be launched in 2014.

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