Twitter IPO as economical as its tweets with 27% discount

No Facebook

Facebook in its IPO was priced at 107 times trailing 12- month earnings on a fully diluted basis, making it more expensive than 99% of all companies in the Standard & Poor’s 500 Index at the time. The company quickly saw its stock sink below its $38 debut price after its IPO, before finally rallying to close above that level this August.

For Silicon Valley, a successful Twitter IPO will go a long way toward erasing the aftertaste from Facebook’s sale, which along with the poor stock market performances of Zynga and Groupon shattered confidence in consumer Internet companies.

Following those offerings, venture capitalists and others shifted investing dollars to technology businesses that sold their products to other businesses, said Nihal Mehta, founder of LocalResponse Inc. and venture capitalist at Eniac Ventures. Now with Twitter’s debut and Facebook trading above its offering price, confidence in consumer technology has revived.

“Twitter will help escalate all the other advertising- based consumer companies, and create potential for more to be born,” Mehta said. “We’re seeing more consumer deals than we ever have before.”

Risk Factors

While Twitter has more than doubled revenue annually, to $534.4 million in the 12 months through Sept. 30, user growth is slowing, filings show. The service had 231.7 million monthly users in the three months through September, up 39% from a year earlier. That compares with 65% growth in the previous year.

Average revenue per user is less than half Facebook’s, filings show, with Twitter’s RPU at 73 cents, based on sales of $168.6 million in the third quarter, compared with Facebook’s $1.60 average monthly revenue per user.

Losses have also widened. For the third quarter, Twitter said its net loss expanded to $64.6 million from $21.6 million a year earlier.

Twitter is making another 10.5 million shares available to underwriters should they choose to exercise an option to buy them. Existing investors may still register to sell shares before the IPO, scheduled to price on Nov. 6, and employees who aren’t executives will be eligible to sell almost 10 million shares as early as Feb. 15. All stock held by executives and directors is subject to a standard 180-day lockup period.

Twitter Stakeholders

Union Square Ventures, which invested in Twitter in 2007, will have a stake valued at $557 million at the high end of the price range, while a stake owned by Spark Capital will be worth $648 million at that price. Benchmark Capital Partners LP has a stake that would be valued at $631 million.

More than 50 individuals and institutions own shares through direct purchases, secondary sales and acquisitions, and hundreds more are invested through various funds. That includes Richard Branson, the billionaire founder of Virgin Group and Saudi Prince Alwaleed bin Talal, people with knowledge of the matter have said.

Twitter will start meeting investors on its road show on Oct. 28, according to a schedule obtained by Bloomberg. The company will make stops in cities including New York, Boston, Chicago, San Francisco, Los Angeles and Denver before ending up back in New York on Nov. 6, the same day the final pricing of the shares is scheduled. Twitter would then start trading on the New York Stock Exchange the next day.

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