Twitter IPO Pegs Valuation at Modest $11 Billion

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Twitter's IPO Filing Implies $12.8 Billion Value Amid Growth
Chris Ratcliffe/Bloomberg via Getty Images
By Alexei Oreskovic
and Gerry Shih


SAN FRANCISCO -- Seeking to avoid a repeat of Facebook's much-maligned public debut, Twitter revealed more modest ambitions, saying its initial offering would raise up to $1.6 billion and value the company at up to about $11 billion.

The valuation was more conservative than the $15 billion some analysts had expected for the social media phenomenon, potentially attracting investors who might consider the money-losing company's listing price a better deal, with room to rise.

Twitter had signaled for weeks it would price its IPO modestly to avoid the sort of stock plummet that spoiled Facebook's (FB) coming-out party. It said Thursday it intends to sell 70 million shares between $17 and $20 apiece, raking in up to $1.4 billion for the company.

If underwriters choose to sell an additional allotment of 10.5 million shares, the offer could raise as much as $1.6 billion.

Twitter's offering will be the most high-profile Internet IPO since Facebook's May 2012 debut, when the social network giant's shares fell below their offering price and didn't recover until a year later. Still, the modest pricing doesn't obscure questions about Twitter's profitability.

"The fact that the valuation is lower than expectations, I think was smart by the underwriters. I think it will help the pop," said Michael Yoshikami of Destinational Weath Management.

"But in the end, even for $11 billion, the question is can they come up with earnings to substantiate that number? And it's unclear that they're going to be able to do that."

At a roughly $11 billion valuation, Twitter would be worth more than Yelp (YELP) and AOL (AOL) combined, but only a fraction of tech giants like Google (GOOG) and Apple (AAPL), worth $342 billion and $483 billion respectively. Facebook's market value is now $128 billion.

Roadshow Reckoning

Twitter and its underwriters begin a two-week road show to woo investors next Monday in New York, with stops in Boston and the mid-Atlantic region before touching down in Chicago, San Francisco, Los Angeles and Denver, according to a source familiar with the offering.

"They're trying to price this for a very strong IPO, ideally creating the conditions for a solid after-market," said Pivotal Research Group's Brian Wieser, who valued the company at $19 billion.

The company could choose to raise the price of the offering during that period as it gauges interest. Twitter is expected to set a final price on Nov. 6, according to a document reviewed by Reuters, suggesting that the stock could begin trading as early as Nov. 7.

Sam Hamadeh of PrivCo, a private company research firm, said Twitter could raise the price range and also the amount of shares being sold. But, he added, "Raising both the price and the size was Facebook's fatal mistake."

Twitter's debut will cap seven years of explosive growth for an online messaging service that counts heads of state and major celebrities among its 230 million active users -- but still operates at a loss.

Twitter will sell roughly 13 percent of the company in the IPO and will have 544,696,816 shares outstanding after the offering. %VIRTUAL-article-sponsoredlinks%That figure could rise given the exercising of options, restricted stock units and the issuance of shares for compensation after the IPO.

The company plans to list its stock under the "TWTR" symbol on the New York Stock Exchange.

Among the biggest Twitter shareholders selling in the offering is Rizvi Traverse, a fund managed by secretive Connecticut-based investor Suhail Rizvi, who has quietly amassed a 17.9 percent stake in Twitter with the help of Silicon Valley investor Chris Sacca.

Rizvi's stake will fall to 15.6 percent of total shares outstanding after the sale. JPMorgan Chase (JPM), which obtained Twitter shares through Rizvi and Sacca, will see its stake fall to 9 percent from 10.3 percent.

Twitter co-founder Evan Williams, the largest individual shareholder, will reduce his stake to 10.4 percent from 12 percent, while chief executive Dick Costolo will emerge with a 1.4 percent stake, compared with 1.6 percent currently.

Co-founder Jack Dorsey will also sell shares, as will early venture capital investors Spark Capital, Union Square Ventures and Benchmark Capital.

Fractured Ownership

Because many early shareholders, including Williams, previously sold parts of their stake to other investors like Rizvi, Twitter's relatively fractured ownership structure looks markedly different from the likes of Facebook and other tech companies dominated by their founders.

When Facebook went public last year, founder and chief executive Mark Zuckerberg kept 57 percent of the company's voting shares, thanks to a scheme that gave him twice the voting power of ordinary shareholders.

Following Twitter's IPO, Costolo will be under pressure to improve its money-making ability. The eight-year-old company more than doubled its third-quarter revenue to $168.6 million, but net losses widened to $64.6 million in the September quarter, it disclosed in a filing earlier this month.

This month, Twitter secured a $1 billion credit line from its underwriters including Goldman Sachs (GS), Morgan Stanley (MS), JPMorgan, Bank of America Merrill Lynch (BAC) and Deutsche Bank (DB).

In recent months the company has aggressively introduced a number of new advertising products, including packages with broadcasters CBS and ESPN that show ads on TV and Twitter simultaneously for the fall TV season.

Twitter has also sought to deepen its relationships with news organizations, which provide much of the content shared on the network. The company said Thursday that it hired NBC News digital executive Vivian Schiller as the head of news.

-Additional reporting by Olivia Oran in New York and Poornima Gupta in San Francisco.

Twitter IPO Pegs Valuation at Modest $11 Billion
One critical question is what sort of celebrity Twitter user Buffett will turn out to be: the laissez-faire famous person who rolls with the hoi polloi's punches, or the hypersensitive control freak who cannot brook the slightest mischief or criticism? There's only one way to find out which alternative Buffett favors, and that's to test him through vigorous trolling.

There are lots of options. Many conservatives dislike Buffett -- whom they might be expected to admire, given his enormous investing success and cheerful advocacy for the U.S. economy -- because of his support for Barack Obama. Particularly galling has been his endorsement of the president's proposal for higher taxes on upper income earners, encapsulated in the so-called Buffett Rule. Buffett's invocation of his secretary, who he has said pays more in federal taxes as a proportion of income than he does, has become a source of mockery; why not ask Buffett why the secretary of the richest investor on Earth isn't a member of the one percent herself? Seems only "fair," to use a word the president favors in this connection.

For those on the left, Buffett's status as arch-capitalist dealmaker offers a few openings. There have, for instance, been questions about what he knew, and when he knew it, before making a $5 billion investment in Bank of America (preferred shares, of course) in August 2011. Shortly after Buffett's purchase, word got out of extensive job cuts (40,000 employees) and the firings of two executives -- restructuring moves likely to raise the bank's stock price. "Did [Buffett] have inside information that other investors were not aware of?" asked bank analyst Richard Bove. "Did he know that there were going to be these two major announcements at the time he made his investment? If he did know, I think it is illegal." These questions are under 140 characters, so have at it.
Bagging the scalp of a verified Twitter user for your followers list can seem like a daunting task. You can do it, though, take it from me: for some reason, I'm being followed by POLITICO's chief economics reporter.

Buffett -- who currently follows zero accounts, despite having received tweets of welcome from such luminaries as @BillClinton, @BillGates, and @BarackObama -- seems like a hard nut to crack. You might have a slight advantage if you're female, since, in the words of a recent essay written for Fortune (and promulgated as his second tweet), "Buffett is bullish... on women." It might also help if your avatar is a picture of a Cherry Coke Can. Buffett failed to identify his favorite soda in a blind taste test conducted by Bloomberg, so we're guessing it's the #branding he likes.
Once you've gotten Buffett to follow you, you'll be able to send him a DM, Twitter's private and confidential telegram. This is an ideal step toward actually hanging with Buffett, which is generally a possibility only for those rich enough to partake in charity auctions. (Last year's winning bid for lunch with Buffett was $3.46 million.)

Some activities that might pique our subject's interest, and which you might consider suggesting: playing bridge, which Buffett once said "is such a sensational game that I wouldn't mind being in jail if I had three cellmates who were decent players and who were willing to keep the game going twenty-four hours a day"; flying around in his private plane, which he once identified as one material thing that makes his life more enjoyable; or reading the newspaper. Buffett owns more than 70 of them, reads five a day, and recently admitted, "It's almost unnatural how much I love newspapers."
Sometimes, those with large Twitter followings will lend their extensive reach to lesser entities looking to spread a worthy message. As a consequence, the retweeted account often gains additional followers. #WinWin.

Buffett has just surpassed 400,000 followers, an impressive rate of influence-accrual. And he has an intense affection for charity, having pledged to donate more than 99% of his wealth. So your best bet, if you want that @WarrenBuffett RT, is to ask nicely on behalf of a good cause.

 Buffett has given $50 million toward anti-nuclear proliferation efforts, calling the bomb "the great problem of mankind," and in 2006 auctioned his 2001 Lincoln Towncar (with "THRIFTY" vanity license plate) to benefit Girls Inc. So, something anti-nuclear and feminist? "Launch women-owned businesses, not thermonuclear warheads." Could work.
For companies, a stock purchase by Buffett is more than a welcome dose of capital; it's a vote of confidence from history's most storied value investor (i.e., one who seeks strong businesses whose shares are underpriced). An endorsement via Twitter could have similar significance.

The recent hack of the Associated Press account showed that even fraudulent tweets can have dramatic effects on trading. Crack Buffett's Twitter password, send a few market-moving tweets under the aegis of that coveted blue-and-white check mark, and you might be able to make off with a lot of money. Or you could just short Berkshire Hathaway and announce the famously long-serving Buffett's retirement, effective immediately. That would be simpler.

I should add that, although one legal expert told 9NEWS that "the prosecution and punishment for whoever hacked the Associated Press Twitter account ... is uncertain," the federal charges against former Reuters deputy social media editor Matthew Keys show that the government is willing to make aggressive use of the Computer Fraud and Abuse Act of 1984 in cases that catch its interest. So you mess with Buffett's Twitter business at your peril. We certainly don't condone such unscrupulous use of social media. #ItWasJustAThought.
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