Commentary

Twitter Raises IPO Price

If you were hoping to cash in on the Twitter craze when the company goes public on Thursday of this week, the price tag just got a little richer: the company announced Monday that it is raising the price range for the initial public offering from $23-$25 -- up from the previous announced range of $17-$20.

Twitter still plans to sell 70 million shares in the IPO, with the possibility of putting an additional 10.5 million shares on the market through an overallotment option, which could raise up to $2 billion for the company. The new price range would put Twitter’s total value somewhere between $12.9 billion and $14 billion -- just about a tenth of Facebook’s current market capitalization of around $117.4 billion. Analysts polled by Reuters predicted the stock could rise to $52 one year after the IPO.

The decision to raise the price suggests growing confidence on the part of Twitter execs following the company’s well-received “road show,” when the company presented its financials and growth projections to potential investors. However it is still shy of previous estimates of a $28-$30 range -- reflecting Twitter execs’ determination to avoid a repeat of Facebook’s dismal, much-criticized debut on Nasdaq in May 2012.

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While many analysts have praised this “conservative” approach, it’s certainly worth noting that Twitter has yet to turn a profit, and in fact posted a $134 million loss in the first three quarters of this year, up from an $80 million loss in full-year 2012.  Of course it’s equally true that the company has a very engaged user base, is still growing fast, and has introduced some solid advertising products, including promoted tweets, which appear to work well in mobile -- putting it on the right side of fast-changing media consumption patterns. According to CEO Dick Costolo, the company gets 71% of its advertising revenues from mobile.

Also in the “plus” column, Twitter has chosen to list on the New York Stock Exchange, which should boost investor confidence that they won’t be subjected to the type of trading “glitches” which plagued Facebook’s Nasdaq IPO.

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