Twitter boosts IPO range amid strong investor demand

Reuters

By Olivia Oran and Gerry Shih

NEW YORK/SAN FRANCISCO, Nov 4 (Reuters) - Twitter Inc raisedthe top end of its IPO price range by 25 percent and will closeits books a day early, signaling strong demand for the mostclosely watched Silicon Valley debut since Facebook Inc last year.

Amid a red-hot market for initial public offerings andsoaring equity markets, Twitter raised its price rangeto $23 to $25 per share on Monday, but kept the offering size at70 million shares. That means it will raise up to $2 billion ifan overallotment option of 10.5 million shares is exercised.

The microblogging network, which has yet to turn a profit,has amassed 230 million users in seven years, including heads ofstate, celebrities and activists. About half of all U.S. adultTwitter users said they get news through the social mediaplatform, according to a Pew Research survey.

Twitter is the best known Silicon Valley company to gopublic since Facebook, though it is seeking a far smallervaluation of up to $13.6 billion compared to Facebook's $100billion.

One source with knowledge of the sales process saidTwitter's IPO is now "massively" oversubscribed and underwritersare looking to select investors who plan to hold the stock for alonger duration rather than traders wanting to do a quick flip.

Some funds that ordinarily did not buy IPO shares wereseeking allocations of up to 10 percent, but were unlikely toget them, according to the source who requested anonymity.

Twitter plans to close the books on the IPO on Tuesday at 12p.m. EST (1700 GMT), a day earlier than scheduled, because ofstrong demand, according to two sources with knowledge of theprocess.

The IPO is set to price on Wednesday, with shares to begintrading on the New York Stock Exchange on Thursday. The previousprice range was $17 to $20 a share.

The new pricing would value the company at up to $13.6billion, or about 12.5 to 13.6 times forecast 2014 revenue of $1billion, according to eMarketer. Both Facebook Inc andLinkedIn Corp trade at about 12 times forecast 2014revenue.

Several equity research analysts said they expect Twittershares to rise after they begin trading, with some setting theirone-year price target as high as $52.

"We would participate within the $23-$25 range, albeit,simple math would dictate that management should price at thebottom end of the new range," BTIG's Richard Greenfield said ina note Monday after the price was raised.

RED-HOT MARKET

Year to date, 2013 has been the strongest for IPOs since2007 in the United States, with more than 178 companies goingpublic, according to Thomson Reuters data. Equity markets areclimbing and investor uncertainty has subsided, at least fornow, over the U.S. debt ceiling crisis and political gridlock.

Shares of Container Store Group Inc doubled on theirfirst day of trade on Nov. 1, joining strong debuts from morethan half a dozen companies, including restaurant chains Noodles& Co and Potbelly Corp and software companyBenefitfocus Inc.

Twitter management has been traveling the United States overthe past week, speaking with potential investors.

Some investors and analysts have raised concerns aboutTwitter being overly reliant on advertising sales, with fewother significant revenue sources in the near term. Twitter saidlast month that its third-quarter revenue more than doubled to$168.6 million, but net losses widened to $64.6 million from$21.6 million a year earlier.

Twitter also disclosed in its new IPO filing on Monday thatit had received a letter from IBM accusing the socialmedia company of infringing on at least three U.S. patents.

Although many tech companies wrangle over intellectualproperty claims, IBM is a more serious and deep-pocketed threatthan any accuser Twitter has faced before. Twitter's thin patentportfolio has been long been a vulnerability, and the companywill likely have to spend money to acquire patents, experts say.

"Twitter has very little IP of their own," said Maulin Shahof Envision IP, an advisory firm. "They seem to have been morefocused on talent and product acquisitions, but I would not besurprised if they now go out and try to actively acquirecompanies that have larger IP portfolios."

Twitter said it had legitimate defense against IBM'saccusations but warned that "there can be no assurance that wewill be successful in defending against these allegations orreaching a business resolution that is satisfactory to us."

FACEBOOK'S EXPERIENCE

Adam Grossman, an analyst at Boston investment firmMiddleton & Co, with about $500 million under management, saidhis firm has yet to decide whether to buy into the IPO. Thehigher valuation "does make me more skeptical" he said.

But Grossman noted that Twitter's bankers were conservativein not raising the size of the offering, which had causedproblems for Facebook's IPO.

Facebook raised its price range as well as the total numberof shares in its IPO just before it debuted in May 2012. Themove maximized the amount that Facebook's backers raised butcontributed to declines in the stock in the early days of trade.

Twitter in contrast has won plaudits for running a moremodest IPO pitch process, including roadshow presentations thatfocused on business fundamentals.

Goldman Sachs is leading Twitter's IPO, alongsideMorgan Stanley and JPMorgan Chase & Co.

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