Social media giant Twitter will launch in public markets on Thursday to the tune of $1.75 billion, listing on the New York Stock Exchange amid a huge wave of investor and media interest.
The San Francisco company increased the price of its shares from $17 to $20, in initial estimates, up to $23 to $25 a share on Monday in a move that values the company at $13.9 billion, or 26 times its revenue in the past 12 months.
In earlier regulatory filings, Twitter said it made $253 million in revenue in the first half of 2013, but still posted a loss of $69 million, partly on increased marketing and research costs.
Twitter maintained a user base of about 218 million average monthly active users, up 44 percent from last year. That’s still small compared to Facebook Inc.’s (NASDAQ:FB) over 1 billon users.
For many who watch IPOs, there is much to be wary of in Twitter’s launch. Key issues include whether the company can expand its user base, better monetize each user, start turning profits and monetize tweeters outside the U.S.
In particular, many have warned that Twitter is valued too highly, given its revenues.
“They are a profound example of another company with a serious overvaluation challenge,” wrote Brian Hamilton, chairman of financial analysis firm Sageworks Inc., in an email to IBTimes. According to Hamilton’s analysis, Twitter is valued at 43 times their sales in 2012, an “extremely high” valuation.
That’s a significantly higher valuation than Facebook’s valuation at the time of its IPO in May 2012, he wrote. Facebook’s debut flopped, and initial investors saw the stock finally overtake its IPO price only in August 2013. The business risks faced by the two social media cousins have long been seen as parallel.
“The company is also still losing money, and at least Facebook was profitable when they went public,” wrote Hamilton.
Others said Twitter’s IPO recalled the dot-com bubble era, partly because the company is less mature and investors are willing to give it the benefit of the doubt, in an atmosphere of market exuberance for tech companies.
“The Twitter IPO seems more reminiscent of the pre-2000 dot-com 'Bubble era' than other recent tech IPOs in 2012 and 2013,” wrote RapidRatings, a financial ratings firm, in a note from mid-October.
RapidRatings, which rates the financial health of companies, gave Twitter a 19 rating, compared to pre-IPO ratings of 73 for Facebook and 69 for LinkedIn Corp (NYSE:LNKD).
Not all analysts or investors are turned off by the company’s fundamentals, though.
Twitter chief executive Dick Costolo told investors in meetings on Monday that it has only reached a small slice of its potential users.
Jim O’Donnell, the chief investment officer at the $6 billion Forward Management LLC fund, told the Journal that Twitter estimated it has only reached 10 percent of its potential users so far, which spurs hope that Twitter will grow into its sizeable valuation.
For many casual investors interested in the company, though, the question of grabbing the first slices of Twitter, at initial IPO prices, is largely moot. Major institutional investors have probably already booked most of the 70 million shares, in a sorely oversubscribed offering.
Small investors may see a slice of advance action by investing in specialist exchange-traded funds, which track IPO performances. One likely ETF is the Global X Social Media Index ETC (NYSEARCA:SOCL), which invests in big global social media brands. Another is the Renaissance IPO ETF, which tracks IPOs leading to market values over $100 million.
Twitter has said it will use the funds raised for “general corporate purposes,” which include an anticipated $215 million of capital expenditures in 2013, and on its taxes.
The U.S. has seen a booming IPO market this year, with especially high volumes and value generated in October 2013. Researcher Renaissance Capital estimates that there are 121 forthcoming IPOs in the pipeline, which will raise $34 billion in the next several months.
Enthusiastic investors took to Twitter itself, naturally, to discuss the imminent launch.
â€” WALL ST JESUS (@WallStJesus) November 5, 2013
That user referred to a StreetInsider.com report, which said five Wall Street analysts opened coverage of Twitter before it launched, an unusual move. On average, the five analysts had a target price for the stock of $41.4, notably higher than the IPO price range.
Others were more irreverent.
â€” CMCMFIN (@CMCMFIN) November 5, 2013