Twitter, yet to show profits, seeks to garner $1.4 bn in IPO
25 October 2013
Twitter Inc is seeking as much as $1.4 billion in the largest internet initial public offering since Facebook Inc – betting, as Bloomberg puts it, that it can convince investors of its ability to turn 500 million tweets a day into profits.
Twitter, which draws more than 230 million monthly active users and has transformed the way people communicate, is taking advantage of renewed appetite for social-media stocks to sell a 13 per cent stake.
Twitter plans to sell 70 million shares at $17 to $20 each in the offering, according to a regulatory filing today. That would value the company at $10.9 billion at the top end of the range, cheaper than Facebook and LinkedIn Corp, based on the 544.7 million common shares outstanding after the IPO.
The six-year-old short-messaging site is taking advantage of a renewed appetite for social-media stocks. While the company has more than doubled its revenue annually, it hasn't yet turned a profit and the pace of user gains is slowing. But chief executive officer Dick Costolo is betting the service's popularity on mobile phones will help lure advertisers.
At the top of the range, San Francisco-based Twitter would be valued at 9.5 times of its estimated sales in 2014 of $1.15 billion. That multiple is lower than Facebook's 12.9 times sales and LinkedIn's 13.4 times sales, according to Bloomberg data.
On a fully diluted basis including restricted stock and options, Twitter will have about 695.2 million shares outstanding. By that measure, at the top end of the range Twitter would be valued at $13.9 billion.
Twitter is aiming to avoid the fate of Facebook, whose stock fell below its $38 debut price after its record $16 billion IPO in May 2012, before finally rallying to close above that level in August 2013.
For Silicon Valley, a successful Twitter IPO will go a long way toward erasing the aftertaste from Facebook's IPO, which along with the poor stock market performances of web companies like Zynga Inc and Groupon Inc shattered some confidence in consumer internet companies.
Twitter's average revenue per user is less than half Facebook's, regulatory filings show. The service had 231.7 million average monthly active users in the three months through September, up 39 per cent from the year-earlier period. That compares with 65 per cent growth the prior year.
About three-fourths of Twitter's most active users accessed the service from mobile devices in the three months through September, compared with 69 per cent in the year-earlier period, filings show.
More than 70 per cent of advertising revenue comes from hand-held devices, a higher proportion than Facebook.
Co-founder Evan Williams's stake will drop to 10.4 per cent from 12 per cent after the offering. The single biggest individual shareholder, Williams would have a stake valued at as much as $1.14 billion following the IPO.
Rizvi Traverse, an entity affiliated with early Twitter backer Chris Sacca, will see its stake shrink from 17.9 per cent to 15.6 per cent after the sale. That holding would be valued at up to $1.7 billion.
Based on the offering terms, Twitter expects IPO proceeds of about $1.25 billion after underwriters' fees. Twitter plans to use those funds for so-called general corporate purposes, including working capital and operating expenses, and may also use them for acquisitions or technology upgrades.
Goldman Sachs Group Inc is the lead underwriter of the IPO, joined by Morgan Stanley, JPMorgan Chase & Co, Bank of America Corp, Deutsche Bank AG, Allen & Co and Code Advisors.
Twitter has said it will list on the New York Stock Exchange and trade under the symbol TWTR.