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As its IPO looms, Twitter faces investor grilling

Sharon Gaudin | Oct. 28, 2013
In the wake of Facebook's troubled IPO, investors will no doubt fire off tough questions

With its IPO share price now set and its roadshow about to begin, Twitter will soon face some tough questions from potential investors.

The microblogging site, which is about to launch its initial public offering in the wake of Facebook's troubled IPO, filed an amended S-1 pre-IPO document with the U.S. Securities and Exchange Commission yesterday, showing that it's setting its share price between $17 and $20 when it opens on the on New York Stock Exchange.

Twitter is looking to offer up 70 million shares, while giving underwriters an option for another 10.5 million.

Twitter's maximum valuation is $11.1 billion.

In the S-1 document, Twitter estimates that -- based on an IPO price of $18.50, which is in the middle of its pricing range -- net proceeds after underwriters' commissions would be about $1.4 billion.

While those numbers sound lofty, they're a drop in the bucket compared to Facebook's $81 billion valuation before its IPO in May 2012. Facebook, which needed more than a year to climb out of the stock market hole its rocky IPO left it in, also set its initial stock price much higher - at $38 per share.

Given the distrust Facebook's disappointing IPO created for the social networking market, Twitter is smart to settle on a lower stock price than Facebook did last year. Twitter's lower share price also reflects on the fact that Facebook was making money at the time of its IPO; Twitter has not been able to do the same.

"We'll see [how smart Twitter is]," said Rob Enderle, an analyst with the Enderle Group. "Facebook was generating profit. Twitter isn't, so it's all relative. Because of the lack of profit, risk is also high with this one despite the lower share price.... They are on track, but this is, and will likely remain, a very difficult IPO to pull off. "

Part of making the IPO successful will involve taking tough questions from Wall Street and significant individual investors.

Twitter is expected to begin its investor roadshow next Monday or Tuesday, starting out by meeting with potential investors in New York and then moving on to Boston, Chicago, San Francisco, Los Angeles and Denver.

Those would-be investors are expected to come loaded with targeted questions about why Twitter hasn't turned a profit yet and what it plans to do to rectify that.

After that, they'll likely quiz Twitter executives on how they can sustain user growth and engagement, their advertising plans and why some people join the site but don't end up using the service.

Investors also may focus on how Twitter plans to fend off rival Facebook, which has been trying to nose in on Twitter's space by adopting hashtags and trending topics. Twitter made them household terms and now Facebook is putting them to use for its own site, hoping to scoop up some of Twitter's timeliness.


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