Twitter ups price range for share offer

Twitter is feeling more optimistic about investor appetite for its initial public offering.

By · 6 Nov 2013
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clock 6 Nov 2013
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Twitter is feeling more optimistic about investor appetite for its initial public offering.

The company raised the price range for its IPO to $US23 ($24.20) to $US25, signalling a bullish outlook before its trading debut this week.

The new range increases Twitter's potential market value by several billion dollars. If it prices at the high end, Twitter would be valued at $US13.9 billion at the start of its first day of trading.

That is more than other relatively young technology companies such as Groupon and Zynga, but less than Facebook, valued at about $US119 billion, and LinkedIn, valued at about $US25 billion.

The new range also increases the amount of money Twitter will raise for itself. At the midpoint, the offering would raise about $US1.7 billion for the company, giving it an infusion of capital to finance its growth.

Last month the company said in a filing with the US Securities and Exchange Commission that it planned to sell 70 million shares at $US17 to $US20 each. That range was below what some analysts had expected, a sign that Twitter was proceeding cautiously and did not want to inflate expectations.

But the higher range suggested Twitter was emboldened by its road show, during which it told its story to institutional investors, who then placed orders for shares.

"Twitter was reserved in how they approached their IPO, and that was a good move on their part," said Brian Blau, research director at Gartner. "That conservative approach is now paying off for them."

Twitter plans to set its IPO on Wednesday and begin trading on Thursday.

The new price range also signals that Twitter is unconcerned it will make one of the mistakes that hampered Facebook's IPO last year, when the social media company priced its shares too aggressively, contributing to an initial fall in its share price.

Facebook also increased the number of shares it was selling to the public before its offering, which Twitter has opted against, despite strong demand.

Raising the price range before an IPO is not an unusual tactic for companies that sense there is strong appetite for their stock. In addition, although investors often cheer a stock zooming higher on its first day of trading, some perceive such a pop as "leaving money on the table", and a failure by the underwriters to price an offering properly.

There has been a round of bullish reports from Wall Street in the last few weeks. Brian Wieser, an analyst at Pivotal Research who follows the advertising industry, recently set a target of $US29 a share for Twitter, based on its long-term revenue potential.

For advertisers, "if you've got a social strategy, Twitter is one of the most effective ways to activate that", he said. "What they've got is unique and not replicable in any sense."

Richard Greenfield, an analyst with BTIG Research, said he thought the stock would reach $US30 over the next year.

He has high expectations for Twitter's revenue, expecting it to rise to $US1.1 billion in 2014 and $US2.7 billion in 2016, from $US636 million this year. "We expect a lot of growth ahead in advertising and Twitter ad products," he said.

But he cautioned that Twitter must still do a better job of attracting and retaining new users.

In the amended filing with the SEC on Monday, Twitter also disclosed that IBM was accusing it of patent infringement.

IBM claims that Twitter infringes on three of its patents, and has invited a settlement.

Twitter said it believed it could defend against the claims.
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