Twitter Plays it Safe with Modest IPO, Aims to Sway Investors

According to Twitter’s regulatory filing, the company is looking to raise up to $1.4 billion in its initial public offering with a share-price range of $17 to $20. That would value the social network at about $9.4 billion to $11.1 billion, considerably less than earlier estimates that placed it as high as $16 billion. The modest valuation suggests that the company hopes to avoid the backlash Facebook experienced with its aggressive IPO. The approach could help Twitter win investors who are wary of the network’s mobile business model.

“But while talk of Twitter tends to lead to comparisons with Facebook, a better model might be found in Pandora,” notes The Wall Street Journal. “Mobile represented 70 percent of Twitter’s advertising revenue in the second quarter. That was well above the 41 percent of advertising revenue for Facebook. But Pandora got 90 percent of its advertising revenue from mobile in that period.”

“That makes the Internet-radio company one of the few pure-play ways to invest in mobile’s growth,” suggests WSJ. “That is a major reason why Pandora’s shares have more than tripled over the past year. Now, Twitter will represent a new avenue for investors to cash in on mobile.”

“The six-year-old short-messaging site, which draws more than 230 million monthly active users and has transformed the way people communicate, is taking advantage of renewed appetite for social-media stocks to sell a 13 percent stake,” reports Bloomberg. “While the company has more than doubled revenue annually, it hasn’t yet turned a profit and the pace of user gains is slowing. Still, Chief Executive Officer Dick Costolo is betting the service’s popularity on mobile phones will help lure advertisers.”

However, while mobile advertising is experiencing growth, mobile ads still do not generate the same revenue that desktop ads typically draw.

“Twitter will help escalate all the other advertising-based consumer companies, and create potential for more to be born,” said Nihal Mehta, founder of LocalResponse and venture capitalist at Eniac Ventures. “We’re seeing more consumer deals than we ever have before.”

About 75 percent of Twitter’s most active users accessed the social network from mobile devices July-September, an increase of about 6 percent from the same period last year. More than 70 percent of Twitter’s ad revenue comes from mobile, which is significantly higher than Facebook’s 41 percent.

Twitter plans to initially sell 70 million shares. The IPO is set to price on November 6, according to Bloomberg.