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Why Twitter’s Valuation Will Soar Leading Up to IPO


Little by little, the file on Twitter (TWTR) is starting to fatten up. With each passing week, the social media site's long-awaited IPO not only draws nearer, but fresh morsels of information are helping to round out its growing dossier.

The latest news, of course, is that the initial pricing target on the deal is $17 - $20 a share, which implies a market value of about $11 billion. Try as they might to tamp down the hype and anticipation, pretty much everyone is still expecting that this deal is only going to grow as the November 7 IPO date approaches.

"They've handled (the pre-IPO period) beautifully so far," says Phil Pearlman, interactive editor at Yahoo Finance in the attached video. "They've used Facebook (FB) as their road map, and have done everything opposite."

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Even though the Twitter deal is now going to be a little bigger and happening a little sooner than first expected, it is still only about one tenth the size of Facebook's debut 18-months ago, and is set to become the biggest social media stock sale since.

"The price will go up as we approach the IPO," Pearlman says, predicting a bidding frenzy. "That will not be a surprise to anybody," he adds, before offering his own pre-launch expected target of $24-$28 a share.

What may surprise people, however, is how well the stock does once it starts trading. Specifically, Pearlman says, because it has the backing and adoration of two key supporters.

"There's a bias inherently built into this, and that is that the media loves the service," he says, confessing that he himself has "used it religiously for the last six years. So I'm a believer and you have the same thing in the financial industry as well where it's becoming the de facto free Bloomberg news service for everybody out there... large and small."

Add in a host of tweeting celebrities, a burgeoning base of teens, and a mix of sports fans, and Pearlman sees this 140-character news sharing sight as non-optional for members of the media. "If Icahn is on there, and PIMCO is on there, if everybody is there, you have to be there."

As long as you have a 2 to 3 year time horizon, he says, you should be fine owning the stock. But if you suddenly get a call from you broker that some shares have suddenly freed up -- watch out.

"Little guys won't have a chance to get stock pre-IPO," he says. "If you do, it'll be like Groucho Marx - 'I wouldn't want to belong to any club that would have me as a member.'"

If you're thinking about trying your luck as a trader, Pearlman simply says don't. "Don't even go there. There are guys out there who are sharks, who trade it every day and have done a thousand IPOs and know how to trade it," he warns. "They're going to be on the other side of your trade."

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