NEW YORK – On Monday, Twitter (NYSE:TWTR) announced that the company is likely to price their initial public offering at the high end of the price range previously announced. According to a report by Bloomberg, the IPO was already several times oversubscribed at $ 25 per and underwriters will stop taking orders at noon on Tuesday in New York before setting the final price on November 6.
Since the IPO has been announced, the price has moved from $ 17 per share to $ 25 per share and there is a high likelihood that the price will go even higher before trading. The euphoria, as quoted by Sun Trust’s Robert Peck, has Twitter better that they can capitalize on renewed investor interest. However, the company need to balance rising the price with the risk of making a debut like Facebook’s (NASDAQ:FB) – share of Facebook traded down on their opening day.
Based on a $ 25 per share price target, Twitter would be valued at roughly $ 13.6 billion or 11.8 times the consensus estimate of $ 11.5 billion for 2014 sales, which is a higher multiple than Facebook’s 11.4 times. According to Bloomberg, if the target price were raised to $ 26 per share the multiple would expand to 12.3 times. Among other ‘social networking’ peers only LinkedIn (NYSE:LNKD) has a higher multiple at 12.4 times next year’s revenue estimate.
Based on the growing interest it appears that Twitter CEO Dick Costolo’s pitch that the unprofitable company needs to spend to improve its advertising products, grow its user base, and enhance its infrastructure is gaining traction.
Twitter also disclosed today IBM (NYSE:IBM) alleged that he company ‘infringed on at least three U.S. patents held by IBM, and inviting us to negotiate a business resolution of the allegations.’ The patents relate to a networking technique based on common contacts, a way to show advertisements without interfering with an interactive site, and using interconnected computers to reduce Web traffic. However the news has not scared off investors.
Twitter has just nine patents and 95 pending applications, far fewer that most companies in the industry. While the IPO has been well received it remains to be seen what share prices will look like after their first quarterly report, Peck said he was looking for a $ 50 target one year after IPO and if that is the case, the IPO price might be a bit too high to make that happen.