Thursday, November 7, 2013

Twitter - IPO

Twitter aims to sell shares for between $23 and $25 apiece. The company plans to sell 70 million shares, which would raise $1.7 billion at the midpoint of the price range. With just under 545 million shares outstanding after the offering, that price would give Twitter an initial market cap of just over $13 billion.

Bullish observers estimated Twitter's fair value at $26 per share, and that shares could climb to $50 in a bull case. Should the service "become ubiquitous like Facebook, the investment case is unusually strong”.

Critics however said that the offering matched 92% of the characteristics of "Bubble-Era IPOs, a considerably higher figure than either Facebook or LinkedIn. Twitter is an earlier-stage company than FB and LinkedIn. In many ways, the Twitter IPO seems more reminiscent of the pre-2000 dot-com 'Bubble era' than other the tech IPOs in 2012 and 2013.

Shares of LinkedIn have more than doubled since the company's 2011 and Facebook, which had a rocky debut in May 2012, is one of 2013's best-performing stock and has gained more than 30% from its IPO price despite being cut in half within a few months of the offering.

A group of executives and founders, including CEO Dick Costolo, Chairman Jack Dorsey and co-founder Evan Williams, will own slightly over 22% of the company post-offering, while a group of institutional investors including Rizvi Traverse Management, JPMorgan, Spark Capital, Benchmark Capital Partners, Union Square Ventures and DST Capital will own approximately 46% of the shares.

Twitter is going public at a time when social-media stocks are all the rage.

On October 30 2013 Facebook’s share price, which had already risen by 84% till early Nov 2013, soared following news that its latest quarterly revenue had hit $2 billion. LinkedIn has seen its stellar revenue growth slow a bit recently, but its shares are still up 95% till Nov 2013.

Twitter has continued to increase its audience, and now (Nov 2013) boasts 232m users that visit it at least once a month. Observers opine Twitter is currently (Nov 2013) generating about $2.30 of revenue per user. That is much less than Facebook makes from its audience, implying Twitter has plenty of room to boost sales.

But they gloss over an important fact. Unlike Facebook and LinkedIn, which were making healthy profits before they went public, Twitter is still losing money—$134m in the first nine months of 2013 compared with $71m in the same period of 2012. These losses make it impossible to compare Twitter’s IPO with others using the traditional yardstick of a price-earnings ratio.

The challenge faced by companies with high ratios is to generate revenue fast enough to meet investors’ expectations. So far (Nov 2013), Twitter has only a microscopic share of the $118 billion a year global market for online advertising. Yet the fact that many people tweet on their smartphones means it is well-positioned to take advantage of growth in mobile advertising.

On the other hand the compact nature of its tweets, limited to 140 characters, means that Twitter will find it harder than Facebook to generate ad formats that mint money. And it now (Nov 2013) faces much stiffer competition from the social network and other companies such as Google in the mobile-ad arena.

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Please note that all data given are merely blogger's opinion. It is strongly recommended that you do your own analysis and research before investing.