Olivia Oran and Ross Kerber
Institutional investors who met with Twitter Inc. this week say they are optimistic about its initial public offering and see little sign of the irrational exuberance that preceded Facebook's splashy coming-out party in 2012.
On Monday and Tuesday, Twitter Chief Executive Officer Dick Costolo and Chief Financial Officer Mike Gupta met with large fund managers and analysts in New York and on the East Coast to sell them on an IPO that seeks to raise up to $1.6 billion for the loss-making social media company.
Closely watched by Wall Street and Silicon Valley, Twitter's relatively conservative offering has differed from Facebook's $16 billion IPO in a panoply of ways, from its vastly smaller deal size to a decision to list on the New York Stock Exchange over Nasdaq.
"It definitely was different than when [Facebook CEO Mark] Zuckerberg came through ... It's the right kind of buzz," said one fund manager who met with Twitter on Monday.
"With Facebook, the buzz was just stupid," said the manager, who declined to be identified because he wasn't authorized to speak to the media.
Twitter last week said that it would price its IPO shares at $17 to $20 a piece, valuing the online messaging company at up to about $11 billion. That is less than the $15 billion that analysts had expected, and far below the $100 billion valuation that Facebook received in its IPO last May.
However, Facebook (FB) had reported an annual profit of $1 billion and revenue of $3.7 billion before it went public, whereas Twitter reported a net loss of $79.4 million on revenue of just $316.9 million in 2012.
At the upper end of its IPO price range, Twitter would be valuing itself at 20 times trailing 12-month sales currently, and about 17 times at the lower end, according to Reuters' calculations from Twitter's IPO filings. But its outstanding share base could swell by tens of millions of stock as holders exercise options and restricted stock units, inflating the valuation.
In comparison, Facebook trades at about 24 times trailing 12-month sales and LinkedIn Corp at roughly 30 times.
And Yet ...
Fund managers viewed Twitter's price range as relatively conservative, basing their perspective on earlier guesses that had pegged the company's range as $28 to $30. Twitter itself mentioned that it had internally valued its own stock at $20.62 as recently as in September.
That has attracted some investors who expect Twitter's shares to climb after they begin trading on the New York Stock Exchange on Nov. 7.
Twitter "is getting a really warm welcome from people," said Scott Sweet, CEO of research firm IPO Boutique.
"Of all the individuals and institutions I've talked to -- which include multibillion dollar hedge funds -- no one has said they aren't playing," Sweet said.
Facebook's float was marred by an 11 percent drop in the stock on its second day of trade and successive declines over the next few months as investors questioned the company's ability to grow revenue through mobile devices.
It didn't help that, before its debut, Facebook's underwriters raised the size of the IPO by 25 percent and also hiked the price range. Finally, technical problems with Nasdaq trading systems delayed the start of trade, sowing confusion amongst nervous traders.
Another investor, who owns shares in Facebook and LinkedIn (LNKD) said his firm is approaching all the Twitter underwriters to ask for a 10 percent allocation, with the hopes of getting between 1.5 to 3 percent.
"It's a stupid game that is played ... if you can get what you want, then you don't want it," he said.
Some investors say they believe management has learned from Facebook's mistakes and are pricing the deal in a more conservative manner.
"It's the anti-Facebook" said a second fund manager, who also spoke on condition of anonymity and is planning on meeting with management later this week.
Twitter will hold its first large investor lunch in New York on Wednesday, and investor interest is expected to build as the roadshow proceeds. After stops in Boston, Chicago, San Francisco, Los Angeles and Denver, the roadshow ends in New York next week with pricing scheduled for Nov. 6 and trading on the New York Stock Exchange to commence a day later under the ticker symbol "TWTR."
The company founders "are gazillionaires already. I think they're not going to want to spend the year after the IPO dominated by the argument about 'why we the IPO,' " the second fund manager said. "Life is short."