Facebook's anemic 2012 initial public offering has gone down in history as one of the great IPO flops. Twitter, it seems, is eager to avoid repeating Mark Zuckerberg's mistake, with the Twitter IPO price set at a modest $17 to $20 per share.
At that price range, the offering of 70 million shares will raise between $1.1 and $1.4 billion for the company. It will give the company an initial market capitalization around $11 billion, excluding warrants, options, and restricted stock units.
The Twitter IPO price is low relative to a $20.62 per share valuation the company gave itself in August. According to Bloomberg Businessweek, the valuation is 9.5 times projected 2014 sales, which is cheaper than both Facebook Inc's (Nasdaq: FB) and LinkedIn Corp's (NYSE: LNKD) multiples.
This valuation "is very reasonable," Dan Niles, the Chief Investment Officer of technology hedge fund AlphaOne Capital Partners, told USA Today. "Twitter is not going to price this to get every single dollar off the table."
Instead, he said, the company wants to make sure Twitter's stock price goes up on the first day of trading.
The social media messaging company - which will trade on the NYSE under the ticker TWTR - also scheduled to price its offering on Nov. 6 and begin trading the following day.
Although the price is set low at the moment, Twitter's executives now begin the roadshow process. As they meet with banks and backers, they have an opportunity to gauge the actual demand for the offering and may change the price and quantity based on that demand.
According to The New York Times Dealbook, Twitter merits a high valuation because it is growing very quickly. The Times points out that Q3 revenue doubled to $168.6 million, compared to the same period last year.
At the same time, however, the growth of Twitter's monthly active users, a measure of engagement used by advertisers, seems to be slowing...
Between the Q2 and Q3 of 2011, monthly average users grew by 18%. For the same period in 2012, it grew 11%; for 2013, 6%. The numbers seem to support a complaint that Twitter's utility is not readily apparent to non-users, as opposed to another social media service like Facebook.
But there are more reasons to be skeptical of the latest tech IPO.
Investing in Twitter Stock: No, Thanks
As Money Morning Chief Investment Officer Keith Fitz-Gerald pointed out earlier this month, Twitter's IPO already has a few strikes against it for the retail investor.
Summoning the ghosts of dot.com IPOs past, Keith asks some solid questions about Twitter's future. He points out that the company is missing a few things that successful companies need and shows that comparing Twitter's potential to Facebook's recent stock climb is premature.
As Keith said, "Remember, Pets.com had a plan. It was going to change the way we took care of our animal buddies. Only, it didn't. And now it's gone."
Twitter IPO as Economical as Its Tweets With 27% Discount
New York Times Dealbook:
Twitter Sets I.P.O. Price at $17 to $20 a Share
Twitter Sets Cautious Valuation for IPO