Meridian Star

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November 7, 2013

Twitter set for public stock debut on NYSE

(Continued)

NEW YORK —

Twitter is also likely hoping for a first-day pop of its shares that eluded Facebook's stock. Facebook's shares closed just 23 cents above their $38 IPO price on their first trading day. They traded below $38 for more than a year.

Still, $18 billion is a lofty valuation for Twitter compared with its peers. At its IPO price,Twitter valued at roughly 28 times its projected 2013 revenue —$650 million based on its current growth rate. In comparison, Facebook trades at about 16 times its projected 2013 revenue, according to analyst forecasts from FactSet. Google Inc. meanwhile, is trading at about 7 times its net revenue, the figure Wall Street follows that excludes ad commissions.

Research firm Outsell Inc. puts Twitter's fundamental value at about half of the IPO price, says analyst Ken Doctor. That figure is based on factors such as revenue and revenue growth.

"That's not unusual," Doctor says. "Especially for tech companies. You are betting on a big future."

One of Twitter's biggest challenges as a newly public company will be to generate more revenue outside the U.S. More than three-quarters of Twitter's 232 million users are outside the U.S. But only 26 percent of Twitter's revenue comes from abroad. The company has said that it plans to bring in more international revenue by hiring more sales representatives in countries such as Australia, Brazil and Ireland.

The pricing means Twitter raised $1.8 billion in the offering before expenses. Twitter was offering 70 million shares in the IPO, plus an option to buy another 10.5 million. If all shares are sold, the IPO will raise $2.09 billion, making it the biggest IPO for an Internet company since Facebook raised $16 billion last year.

Twitter, which has never turned a profit in 7 years of existence, had originally set a price range of $17 to $20 per share for the IPO, but that was an obvious lowball designed to temper expectations. It was widely expected that the price range would go higher. Back in August, for example, the company priced some of its employee stock options at $20.62, based on an appraisal by an investment firm and it's unlikely to have lost value since.

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