Twitter Shows Some Modesty in its IPO Pricing

Twitter values company at $11 billion, lower than highest $14 billion analyst estimate.

A smartphone display shows the Twitter logo in Berlin, Germany.
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Twitter is seeking to win over Wall Street with modesty by valuing its company at approximately $11 billion during its initial public offering, as opposed to the $14 billion valuation of some analysts.

The social media giant on Thursday amended its stock pricing in the S-1 documents filed with the Securities and Exchange Commission and moved the stock sale up to Nov. 6. Analysts have valued the company as high as $14 billion.

This modesty could help Twitter avoid the trap of overhyping itself that soured investors on Facebook stock in the months following its IPO in 2012, and could offer a lesson for tech companies aspiring to expand on how to gain the trust of investors, says Brian Blau, research director on consumer technologies at Gartner, a technology research firm. Twitter also posted a video presentation as part of a road show to seek potential investors, which is more "straightforward" than the road show presentations that Facebook gave to investors, Blau says.

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"I have a feeling that really rings well with investors," Blau says.

The same way Twitter is learning from the mistakes of Facebook's IPO, tech companies could take a more modest approach toward investors if Twitter's IPO is well-received, Blau says. After going public in May 2012, Facebook faced intense pressure from investors, forcing Facebook to develop its revenue strategy, and the stock slumped before rising above its IPO price in July of this year.

"Oftentimes the tech market is all hyped up on itself. They make a lot of promises, and there are a lot of opportunities, especially in the consumer market, but those don't always work out," Blau says.

The company is growing fast, as Twitter's revenue more than doubled since 2012. Twitter reported $254 million for the first six months of 2013, compared with $122.3 million generated during the same period in 2012. However, Twitter reported a net loss of $79 million in 2012, so the company is looking for new ways to monetize its more than 200 million monthly active users.

"There is a lot of risk on how they are going to grow the business and how they are going to generate revenue," Blau says. "Twitter taking that air of stability can say, 'yes we are conservative but that means there is that much more opportunity out there.'"

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Twitter's IPO is important since it can help make Wall Street more comfortable with tech companies as a stable venture says Mark Levine, managing director of Core Capital Partners venture capital firm. As the number of tech deals increase then pricing the value of a tech company will become more accurate, he adds.

"The more tech companies go public and perform well, I think that creates an environment where it's much easier for other tech companies to go public," Levine says. "If public companies become more vibrant and likely to go public that will also have a downstream effect of causing prices on [mergers and acquisitions] to rise."

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