Without profits, Twitter IPO is still more expensive than Facebook

Twiter Office

Twitter Inc. is poised to price its initial public offering at a valuation that makes it more expensive than Facebook Inc., a profitable rival with five times as many users.

Twitter yesterday sold 70 million shares at $26 each, putting the microblogging service at 12.4 times estimated 2014 sales of $1.14 billion, according to analyst projections compiled by Bloomberg. That is higher than the 11.6 times that Facebook was trading at yesterday and similar to LinkedIn Corp.’s multiple of 12.2 times sales.

Twitter’s $1.82 billion IPO is almost as much as the $1.9 billion that Google Inc. raised in its 2004 IPO and makes it the largest IPO by a U.S. technology company since Facebook’s debut in May 2012. It puts the market capitalization of Twitter at $14.2 billion, more than double that of Groupon Inc.

The price increase underscores how Twitter, which had a conservative IPO strategy relative to some Internet peers, is starting to shed that approach. The company initially set a range that put it at a 27 percent discount to Facebook on a price-to-sales basis, yet is now creating a higher bar for success by forcing prospective investors to pay an even larger premium for its promises of fast growth.

“A tech IPO like Twitter with no profit is an emotional event, not a fundamental event. You either believe or you don’t,” said Max Wolff, chief economist and strategist at ZT Wealth. “Above $26, I think this thing starts to look a little dicey.”

Twitter previously took steps to avoid the hype that befell the IPOs of Facebook, Groupon Inc. and Zynga Inc. Facebook, which raised its offering price range in the run-up to its IPO in May 2012, saw its shares lose more than half their value within three months of going public.

By contrast, Twitter filed its offering prospectus secretly with the Securities and Exchange Commission, spelled out more risk factors than Facebook, and picked a different lead banker. Goldman Sachs Group Inc. is leading Twitter’s offering, while Morgan Stanley led Facebook’s.

Twitter also chose to list on the New York Stock Exchange, instead of the Nasdaq Stock Market where Facebook trades. It earlier set a price range of $17 to $20 a share.

Still, while Facebook was profitable when it went public, Twitter lost $64.6 million in the September quarter, wider than the $21.6 million a year earlier. The company, which doesn’t give a target for profitability, isn’t anticipated to make money until 2015, according to analysts’ predictions compiled by Bloomberg.

Twitter has also been contending with slowing user growth. Its membership base, which stood at about 230 million people worldwide in September, is a fifth of the size of Facebook’s more than 1 billion users.

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