Twitter's 'Anti-Facebook' IPO Tactics Win Over Some Investors

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Twitter Pitch To IPO Investors Hinges On Future Growth Potential
Scott Eells/Bloomberg via Getty ImagesTwitter CEO Richard Costolo, left, and Chief Financial Officer Mike Gupta leave JPMorgan Chase headquarters in New York last Friday.
By Jessica Toonkel,
Olivia Oran and Ross Kerber


Institutional investors who met with Twitter Inc. this week say they are optimistic about its initial public offering and see little sign of the irrational exuberance that preceded Facebook's splashy coming-out party in 2012.

On Monday and Tuesday, Twitter Chief Executive Officer Dick Costolo and Chief Financial Officer Mike Gupta met with large fund managers and analysts in New York and on the East Coast to sell them on an IPO that seeks to raise up to $1.6 billion for the loss-making social media company.

Closely watched by Wall Street and Silicon Valley, Twitter's relatively conservative offering has differed from Facebook's $16 billion IPO in a panoply of ways, from its vastly smaller deal size to a decision to list on the New York Stock Exchange over Nasdaq.

"It definitely was different than when [Facebook CEO Mark] Zuckerberg came through ... It's the right kind of buzz," said one fund manager who met with Twitter on Monday.

"With Facebook, the buzz was just stupid," said the manager, who declined to be identified because he wasn't authorized to speak to the media.

Twitter last week said that it would price its IPO shares at $17 to $20 a piece, valuing the online messaging company at up to about $11 billion. That is less than the $15 billion that analysts had expected, and far below the $100 billion valuation that Facebook received in its IPO last May.

However, Facebook (FB) had reported an annual profit of $1 billion and revenue of $3.7 billion before it went public, whereas Twitter reported a net loss of $79.4 million on revenue of just $316.9 million in 2012.

At the upper end of its IPO price range, Twitter would be valuing itself at 20 times trailing 12-month sales currently, and about 17 times at the lower end, according to Reuters' calculations from Twitter's IPO filings. But its outstanding share base could swell by tens of millions of stock as holders exercise options and restricted stock units, inflating the valuation.

In comparison, Facebook trades at about 24 times trailing 12-month sales and LinkedIn Corp at roughly 30 times.

And Yet ...

Fund managers viewed Twitter's price range as relatively conservative, basing their perspective on earlier guesses that had pegged the company's range as $28 to $30. Twitter itself mentioned that it had internally valued its own stock at $20.62 as recently as in September.

That has attracted some investors who expect Twitter's shares to climb after they begin trading on the New York Stock Exchange on Nov. 7.

Twitter "is getting a really warm welcome from people," said Scott Sweet, CEO of research firm IPO Boutique.

"Of all the individuals and institutions I've talked to -- which include multibillion dollar hedge funds -- no one has said they aren't playing," Sweet said.

Facebook's float was marred by an 11 percent drop in the stock on its second day of trade and successive declines over the next few months as investors questioned the company's ability to grow revenue through mobile devices.

It didn't help that, before its debut, Facebook's underwriters raised the size of the IPO by 25 percent and also hiked the price range. Finally, technical problems with Nasdaq trading systems delayed the start of trade, sowing confusion amongst nervous traders.

%VIRTUAL-article-sponsoredlinks%It took over a year for Facebook shares to reclaim their IPO price.

Another investor, who owns shares in Facebook and LinkedIn (LNKD) said his firm is approaching all the Twitter underwriters to ask for a 10 percent allocation, with the hopes of getting between 1.5 to 3 percent.

"It's a stupid game that is played ... if you can get what you want, then you don't want it," he said.

Some investors say they believe management has learned from Facebook's mistakes and are pricing the deal in a more conservative manner.

"It's the anti-Facebook" said a second fund manager, who also spoke on condition of anonymity and is planning on meeting with management later this week.

Twitter will hold its first large investor lunch in New York on Wednesday, and investor interest is expected to build as the roadshow proceeds. After stops in Boston, Chicago, San Francisco, Los Angeles and Denver, the roadshow ends in New York next week with pricing scheduled for Nov. 6 and trading on the New York Stock Exchange to commence a day later under the ticker symbol "TWTR."

The company founders "are gazillionaires already. I think they're not going to want to spend the year after the IPO dominated by the argument about 'why we the IPO,' " the second fund manager said. "Life is short."

12 PHOTOS
The 10 Richest People in America: Forbes 2013 List
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Twitter's 'Anti-Facebook' IPO Tactics Win Over Some Investors

Source: Microsoft, investments
Age: 57
Residence: Medina, Wash.
Self-made


Gates remains atop The Forbes 400, a perch he’s held since 1994, despite giving away $28 billion, most of it to the Bill & Melinda Gates Foundation. He’s also again the world’s richest person, having reclaimed that title from Mexico’s Carlos Slim earlier this year. He bolstered his foundation’s efforts to eradicate polio in April, securing $335 million in pledges from six billionaire comrades, including $100 million each from Slim and Mike Bloomberg. Shares of Microsoft jumped in late August on news that Steve Ballmer will step down as CEO, but Gates will remain chairman of the software company he cofounded in 1975 with Paul Allen. Microsoft represents less than a fifth of his fortune. Gates’ investment firm, Cascade, owns chunks of tractormaker Deere & Co., Canadian National Railway and Mexican Coke bottler Femsa.

Source: Berkshire Hathaway
Age: 83 
Residence: Omaha
Self-made


Neither age nor prostate cancer slows Buffett down: a year after completing radiation treatment, he is still doing huge deals. His Berkshire Hathaway picked up iconic ketchupmaker H.J. Heinz for $23.2 billion in June in a deal with Brazilian billionaire Jorge Paulo Lemann. A Berkshire subsidiary is buying Nevada’s NV Energy for $5.6 billion in cash. He gave away another $2 billion of Berkshire stock to the Gates Foundation in July, bringing his lifetime giving to nearly $20 billion. Despite the gift, he saw his fortune rise $12.5 billion, more than any other member of The Forbes 400, thanks to a 34% increase in Berkshire shares.
 

Source: Oracle
Age: 69
Residence: Woodside, Calif. 
Self-made


Little gets in the way of Larry Ellison’s ambition -- or mouth. In a TV ­interview in August the Oracle founder said that Apple’s best days are behind it after the passing of Steve Jobs, a close friend, and that Google’s alleged infringement on Oracle’s patents in its Android software was “absolutely evil.” His dream of a winning second America’s Cup sailing trophy was dealt a serious blow in September when a jury found the Oracle team guilty of cheating and docked it two points. He collects houses on Malibu’s Carbon Beach and also owns of 98% of Hawaii’s Lanai island. In his quest for youth he has donated $445 million to his medical foundation to support research on aging and age-related diseases.
 

Source: Diversified 
Age: 77
Residence: Wichita, Kans.
Inherited & Growing


Charles is chairman and CEO of Koch Industries, the country’s second largest private company with sales of $115 billion, a post he’s held since 1967. He and his brother David, with whom he shares the fortune, failed to unseat Barack Obama as President in 2012 but keep finding ways to drive liberals crazy. The latest frenzy was over Charles and younger brother David’s widely reported (but never confirmed) interest in buying Los Angeles Times and Chicago Tribune as platforms for their libertarian views. His net worth is up $5 billion this year as Koch Industries  steadily expands. The company agreed to buy electronics-components maker Molex for $7.2 billion and cellulose fibers producer Buckeye Technologies for $1.5 billion. They invested $1.5 billion in glassmaker Guardian Industries. The thrifty brothers reinvest 90% of earnings in the business. He studied nuclear and chemical engineering at MIT.
 

Source: Diversified 
Age: 73
Residence: New York City
Inherited & growing


David is New York City’s richest resident. He and his brother Charles, with whom he shares the fortune, failed to unseat Barack Obama as President in 2012 but keep finding ways to drive liberals crazy. The latest frenzy was over Charles and younger brother David’s widely reported (but never confirmed) interest in buying Los Angeles Times and Chicago Tribune as platforms for their libertarian views. His net worth is up $5 billion this year as Koch Industries steadily expands. The company agreed to buy electronics-components maker Molex for $7.2 billion and cellulose fibers producer Buckeye Technologies for $1.5 billion. They invested $1.5 billion in glassmaker Guardian Industries. The thrifty brothers reinvest 90% of earnings in the business. David is a prostate cancer survivor, and he’s contributed more than $200 million to finding a cure. Like his brother, he studied chemical engineering while at MIT.

Source: Wal-Mart
Age: 58
Residence: Jackson, Wyo.
Inherited


Christy is once again the richest woman in the world. She inherited her wealth when husband, John Walton, a Green Beret and medic in Vietnam War, died in an airplane crash in 2005. She got a huge chunk of Wal-Mart shares. But it is his side investment in First Solar that boosts her fortune ahead of all the other Waltons. That lead, which had narrowed when the stock tanked a couple of years ago, has once again widened, as First Solar shares rose 57% in past year.

Source: Wal-Mart
Age: 65
Residence: Bentonville, Ark.
Inherited


The combined fortune of Sam Walton’s heirs is up 27%, or $28.9 billion, from a year ago due to a change in control of the shares held by their late mother’s (d. 2007) trust. Shares of Wal-Mart are up only 2%. Their father Sam and uncle James started the giant retailer in 1962, which  now employs 2.2 million people in 11,000 stores worldwide. The siblings have split more than $1.4 billion in dividends after taxes so far in 2013. Jim, Sam’s youngest son, is the CEO of the family’s Arvest Bank, which is worth $1.8 billion and has branches in Arkansas, Kansas, Oklahoma and Missouri.

Source: Wal-Mart 
Age: 63
Residence: Fort Worth, Tex.
Inherited

Alice’s Crystal Bridges Museum of American Art -- which she founded in 2011 -- has eclipsed 1 million visitors in under two years of operation. The Bentonville, Ark., museum includes works spanning five centuries from icons like Andy Warhol, Norman Rockwell and Georgia O'Keeffe.   The combined fortune of Sam Walton’s heirs is up 27%, or $28.9 billion, from a year ago due to a change in control of the shares held by their late mother’s (d. 2007) trust. Shares of Wal-Mart are up only 2%. Their father Sam and uncle James started the giant retailer in 1962, which now employs 2.2 million people in 11,000 stores worldwide. The siblings have split more than $1.4 billion in dividends after taxes so far in 2013.

Source: Wal-Mart
Age: 69
Residence: Bentonville, Ark.
Inherited

While the Waltons and Wal-mart continue to get richer, it hasn't been all smiles this past year for S. Robson, the eldest sibling, who has been chairman of the $469 billion (sales) retailer since 1962. Employees organized protests against low wages in 15 cities across the U.S. Wal-Mart also endured criticism for its connection to a bribery scandal in Mexico. The combined fortune of Sam Walton’s heirs is up 27%, or $28.9 billion, from a year ago due to a change in control of the shares held by their late mother’s (d. 2007) trust. Shares of Wal-Mart are up only 2%. Their father Sam and uncle James started the giant retailer in 1962, which now employs 2.2 million people in 11,000 stores worldwide. The siblings have split more than $1.4 billion in dividends after taxes so far in 2013.

Source: Bloomberg LP
Age: 71
Residence: New York City 
Self-made

 
The world’s richest mayor ends a 12-year run atop the Big Apple in December. His next act is anyone’s guess, but he will likely continue to exert his political influence on the national debate over gun control. His fortune is up $6 billion since last year, thanks to the performance of Bloomberg LP, the financial data firm he founded in 1982 after being fired from Salomon Brothers. He owns 88% of the company, which generated $7.9 billion in 2012 revenue. He also owns at least 10 homes in Manhattan, Westchester County, Bermuda, Vail and the Hamptons. His lifetime philanthropic giving is at $2.8 billion, including a recent $100 million pledge to the Gates Foundation to help Bill Gates eradicate polio.

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