Twitter IPO shares aren't for everyone
That's the
word from the Ritz Carlton Hotel in Twitter's hometown here, where the company
and its investment bankers gave a presentation to professional money managers
on Monday.
Members of the press weren't
allowed into the room where the event was held, but we were able to ambush a
half-dozen fund managers while they waited in a taxi line after the meeting.
Once accosted, I asked this
question to those who said they had seen the IPO presentation:
Do you plan to buy Twitter
shares?
Of the six who answered, one
said, "We're not allowed to talk about it," two said yes, two said
not sure, and another said no, while cursing the company's investment bankers.
"They'll oversubscribe it
10 times," said the man, who declined to give his name.
He was right, of course.
Demand was so strong for the
shares that Twitter on Monday raised its IPO price range to $23 to $25 a share.
At the midpoint of that price
range, Twitter will raise $1.7 billion.
Among Internet technology
companies that have gone public during the last three years, that ranks
Twitter's IPO behind those of Facebook and LinkedIn in size, and slightly ahead
of Groupon and Zynga.
It also gives Twitter an IPO
valuation relative to annual revenue that is more similar to that of Facebook
than LinkedIn at the time of their respective offerings.
While Facebook has been a mixed
bag for investors, depending on what they paid for shares, LinkedIn has
produced market-beating returns and has never fallen below its $45 IPO price.
LinkedIn is now consistently
profitable and valued at almost $27 billion, while Facebook, also profitable
several quarters in a row, is valued at a staggering $122 billion.
Twitter, unprofitable and much
smaller than those Internet advertising rivals, is expected to be valued at
between $13 billion and $14 billion.
Twitter's sales are projected
to rise 53% next year to $950 million, according to an estimate that the
company's bankers provided to presentation attendees.
One of those who attended and
said they were unsure whether they would place a bid on Twitter IPO shares was
Sam Console, senior equity portfolio manager for Rainier Investment Management
of Seattle.
He said the fund-management
firm would consider the new forecasts for revenue and profit shared by
Twitter's bankers before making their decision.
"We need to talk about it
some more," said Console, who started his career as an equity analyst in
1996.
The tech IPOs conducted since
Netscape Communications set off the tech stock boom that year have one
important thing in common: a scarcity of shares.
By selling only a small slice
of a newly public company, Twitter's bankers are following a long-established
game plan that ensures more buyers than sellers at the time of the IPO — even
though the offering is for 70 million shares.
Thanks to that imbalance of
supply and demand, money managers who can get the stock at its IPO price this
week could see a quick profit.
Longer term, what Twitter's
stock performance will be for everyone else is anyone's guess now.
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