Twitter Inc. (TWTR:US) is likely to price its initial public offering above the increased range announced earlier today, raising more than $1.75 billion, two people with knowledge of the matter said.
The IPO is already several times oversubscribed at $25 a share, the high end of the range, said the people, who asked not to be named because the information is private. Underwriters for Twitter’s IPO will stop taking orders at noon tomorrow in New York before setting the final price on Nov. 6, one person said.
Twitter is betting that it can capitalize on a rising stock market and renewed investor interest in new stocks. The company needs to balance that with the risk of a market debut like that of Facebook Inc. (FB:US), owner of the world’s largest social network, which fell below the initial price and took more than a year to recover.
The company’s anticipated valuation has become more expensive than Facebook Inc. (FB:US)’s relative to sales, as it raised the offering price. At $25 a share -- the top of an increased price range announced today -- Twitter’s outstanding common stock would be valued at $13.6 billion, or 11.8 times analysts’ average estimate of $1.15 billion for 2014 sales, data compiled by Bloomberg show. That’s higher than Facebook’s forward multiple of 11.4 times.
If Twitter were to further increase its selling price by one dollar to $26, its multiple would expand to 12.3 times, data compiled by Bloomberg show. Among the publicly traded peers that Twitter names in its IPO filings, only LinkedIn Corp. is more expensive, at about 12.4 times next year’s sales estimate.
Gabriel Stricker, a spokesman for Twitter, declined to comment.
In a filing earlier today, Twitter increased the price it’s seeking in the IPO to $23 to $25, from a range of $17 to $20. Banks managing the debut were getting sufficient interest from investors for the IPO to be oversubscribed even before they started taking orders, one person familiar with the matter said on Oct. 31.
Twitter is benefiting from investors seeking out new ways to capitalize on the rising stock market. The Bloomberg IPO Index rose to a record today.
“This number is still a reasonable and doable valuation, and I don’t think it’s going to turn people off,” Santosh Rao, an analyst at Greencrest Capital Management LLC, said after the increased range was announced. “We’ve seen this before, where companies start off with a low number to get people interested, and then work higher. The demand is there as this is the last of the big three social networks to go public.”
Chief Executive Officer Dick Costolo has been traveling to major U.S. cities to make the case that the unprofitable company needs to spend to improve its advertising products, grow its user base and enhance its infrastructure.
Twitter also disclosed in the filing today that International Business Machines Corp. sent a letter “alleging that we infringe on at least three U.S. patents held by IBM, and inviting us to negotiate a business resolution of the allegations,” according to the filing. 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.
Armonk, New York-based IBM, which has been the biggest recipient of U.S. patents for the past two decades, gets about $1 billion a year in licensing revenue. The company rarely files (IBM:US) infringement lawsuits. It spent four years talking with Amazon.com Inc. before suing over Internet-commerce related patents in October 2006. The companies settled seven months later with Amazon.com paying an undisclosed amount.
Twitter had just nine patents and 95 pending applications as of Sept. 30, far fewer than its competitors or other companies in the industry. The company said that could make it a target for litigation, and it would be limited in its ability to fight back by asserting its own patents.
Twitter is set to price its shares on Nov. 6 and begin trading the next day under the symbol TWTR, listed on the New York Stock Exchange (NYX:US). Goldman Sachs Group Inc. is leading the offering, working with Morgan Stanley (MS:US) and JPMorgan Chase & Co (JPM:US).
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