Twitter Inc.’s $10.9 billion initial public offering valuation is as economical as its 140-character tweets.
The San Francisco-based company is seeking a valuation of 9.5 times 2014 sales in its IPO next month, according to data released in a filing with the Securities and Exchange Commission Thursday and analyst projections compiled by Bloomberg. That’s 27 percent cheaper than the 12.9 times 2014 sales that Facebook Inc. traded at as of Thursday, and 29 percent lower than LinkedIn Corp.’s multiple of 13.4 times sales, the data show.
The discount Twitter is offering underscores how the six-year-old short-messaging site is working to avoid the fate of Facebook, Groupon and Zynga, which all lost more than half of their value within six months of their initial offerings. Twitter Chief Executive Officer Dick Costolo has taken a different tack from the start, first by filing confidentially to go public to avoid the hype that drove up Facebook’s pre-IPO valuation, and now by pricing the company more modestly than some of its Internet peers. The moves have left Twitter positioned to capitalize on a revival in investor appetite for social-media stocks.
“It’s fair to say they’re learning from Facebook’s mistakes,” said Michael Scanlon, managing director at Manulife Asset Management in Boston, who helps manage $3 billion. “It’s hard to imagine this deal isn’t oversubscribed and then they’ll have to gauge what they think the opportunity is to increase the price.”
Twitter plans to sell 70 million shares — or a 13 percent stake — at $17 to $20 each to raise as much as $1.4 billion, according to a filing Thursday. The $10.9 billion valuation at the top end of the range is based on the 544.7 million common shares outstanding after the IPO.
On a fully diluted basis, including restricted stock and options, Twitter will have about 695.2 million shares outstanding. By that measure, at the top end of the range Twitter would be valued at $13.9 billion.
Twitter’s top shareholders are keeping their shares, and after the offering co-founder Evan Williams will hold more than a 10 percent stake, the filing shows. He’s the single-biggest individual stockholder. Affiliates of Rizvi Traverse Management LLC will hold almost a 16 percent stake valued at $1.7 billion.
By hanging on to their stock, Twitter insiders are showing they’re bullish about the company’s growth prospects, said Robert Peck, an analyst with SunTrust Robinson Humphrey in New York. Peck has a buy rating on Twitter and expects the stock to rise to $50 by the end of 2014.
The sale would be the largest IPO for an Internet company since Facebook debuted on the stock market in May 2012 and raised $16 billion. At the time, Facebook was valued at $81.3 billion based on the number of its common shares, or $104 billion based on a fully diluted share count. The Menlo Park, Calif.-based company bumped up its offering price range to $34 to $38 after initially seeking $28 to $35.
Facebook in its IPO was priced at 107 times trailing 12-month earnings on a fully diluted basis, making it more expensive than 99 percent of all companies in the Standard & Poor’s 500 Index at the time. The company saw its stock sink below its $38 debut price before finally rallying to close above that level this August.