Twitter Inc. raised the top end of the price range for its initial public offering by 25 per cent and will close its books a day early, signalling strong demand for the most closely watched Silicon Valley debut since Facebook Inc. last year.
Amid a red-hot market for IPOs and soaring equity markets, Twitter raised its price range to $23 to $25 per share on Monday, from a previous $17 to $20.
The microblogging network, which has yet to turn a profit, kept the size of the offering at 70 million shares. That means it will raise up to $2-billion if the overallotment option of 10.5 million shares is exercised.
The new pricing would value the company at up to $13.6-billion, or about 12.5 to 13.6 times forecast 2014 revenue of $1-billion, according to eMarketer. Both Facebook Inc and LinkedIn Corp trade at about 12 times forecast 2014 revenue.
Several equity research analysts said they expect Twitter shares to rise after they begin trading, with some setting their one-year price target as high as $52.
“We would participate within the $23-$25 range, albeit, simple math would dictate that management should price at the bottom-end of the new range,” BTIG’s Richard Greenfield said in a note Monday after the price was raised.
Twitter’s IPO is fully subscribed, meaning it has attracted more than enough investor interest, according to a source familiar with the offering.
The company plans to close the books on the IPO a day earlier than scheduled, on Tuesday at 12 p.m. EST, because of strong demand, according to two sources with knowledge of the process.
The IPO is set to price on Wednesday, with shares to begin trading on the New York Stock Exchange on Thursday.
Twitter also said Monday it had received a letter from International Business Machines Corp alleging Twitter infringed at least three U.S. patents held by IBM.
Year to date, 2013 has been the strongest for IPOs since 2007 in the United States, with more than 178 companies going public, according to Thomson Reuters data. Equity markets are climbing and investor uncertainty has subsided, at least for now, over the U.S. debt ceiling crisis and political gridlock in Washington.
Shares of Container Store Group Inc doubled on their first day of trade on November 1, joining strong debuts from more than half a dozen companies, including restaurant chains Noodles & Co and Potbelly Corp and software company Benefitfocus Inc.
Twitter management has been travelling the United States over the last week, speaking with potential investors.
Adam Grossman, an analyst at Boston investment firm Middleton & Co., with about $500-million under management, said his firm has yet to decide whether to buy into the IPO. The higher valuation “does make me more skeptical” of buying the shares, Grossman said.
But he noted that Twitter’s bankers were conservative in not raising the size of the offering, which likely caused problems for Facebook’s IPO.
Facebook’s float was marred by an 11-per-cent drop in the stock on its second day of trading and successive declines over the next few months as investors questioned its ability to boost revenue through mobile devices. It didn’t help that before its debut Facebook’s underwriters raised the IPO size by 25 per cent and also hiked the price range.
“This is not a surprise,” senior analyst Kim Forrest of Fort Pitt Capital Group, which manages $1.5-billion in assets, said of Twitter’s decision to raise the price range. “The people underwriting the IPO have a responsibility to the company selling these shares to extract the highest price it can. It has to walk a fine line to make it attractive to investors.”
Goldman Sachs is leading Twitter’s IPO, alongside Morgan Stanley and JPMorgan Chase & Co.