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Twitter counts down to $11 billion IPO

Twitter

By Shona Ghosh

Posted on 25 Oct 2013 at 10:40

Twitter hopes to raise up to $11 billion when it goes public on the New York Stock Exchange later this year.

In its most recent public filing, the company said it planned to offer 70 million shares at $17 to $20 a pop, raising up to $1.6 billion at a top-end valuation of $11 billion.

The price range has been greeted by analysts as relatively modest, with Twitter hoping a lower price might pull in investors unconvinced by its financials. The company revealed in an earlier filing that it had posted losses over the last three years, despite huge revenue growth.

But in the end, even for $11 billion, can they come up with earnings to substantiate that number?

Despite its highly anticipated offering, Twitter is also likely hoping to avoid the same fate as Facebook, whose shares tumbled below their offering price on its May debut last year. Facebook went public at $38 a share, but the share price rapidly went south, though it has since recovered.

But underlying questions about Twitter's profitability is still causing doubt among some analysts. "The fact that the valuation is lower than expectations, I think was smart by the underwriters. I think it will help the pop," Michael Yoshikami of Destinational Wealth Management told Reuters.

"But in the end, even for $11 billion, the question is: can they come up with earnings to substantiate that number? And it's unclear that they're going to be able to do that."

Potential barriers

According to its IPO documents, Twitter now has 218 million monthly active users, and 500 million updates are sent a day. Facebook, by comparison, has more than one billion monthly active users.

The company reported that revenue almost tripled in 2012 to $316.9 million. In the first half of 2013, revenue stood at $253.6 million, but losses came to $69.3 million.

Although a profit is still unlikely this early in the company's growth, CEO Dick Costolo will be under pressure to prove Twitter's long-term ability to make money.

For example, there are likely to be questions around the company's presence in international markets, something it admits in its filing.

The company warned that its growth might be stymied outside the US by the presence of local competitors. "For example, in South Korea we face intense competition from a messaging service offered by Kakao, which offers some of the same communication features as Twitter," said the company.

Twitter also noted that local regulation could put a dampener on ad growth. "[We] face challenges in providing certain advertising products, features or analytics in certain international markets, such as the European Union, due to government regulation," it said.

Still, that hasn't stopped Twitter from expanding aggressively, both in terms of ads and products. Earlier this year it launched video clip service Vine, then followed with Twitter Music - though that might be on the scrapheap soon.

It's also taken its first steps into TV advertising, with major broadcast partnerships in the US, and hired NBC journalist Vivian Schiller to boost its standing with news organisations.

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