Twitter began pitching its initial public offering to investors Friday with a price analysts described as unexpectedly cheap, but the social network could decide to follow rival Facebook’s path by increasing its price or size after gauging Wall Street’s interest.
շɾٳٱ, announcing it plans to sell 70 million shares in a price range from $17 to $20, which would send $1.4 billion to Twitter’s San Francisco headquarters and value the company at $10.9 billion at the high end of the range.
Analysts were mildly surprised at the pricing, since Twitter said in that it had valued its shares at $20.62 in the private market in August. Though that estimation was likely done with a different share count that did not include the 70 million shares created in the offering, moving down from that number shows a tame approach to the process that could drive investors’ interest.
“It’s a lower price than expected and lower than the private shares markets indicated, which means it is highly likely to be oversubscribed,” meaning there will be much more demand for shares than Twitter is so far willing to sell, Wedbush Securities managing director of equity research Michael Pachter on Thursday.
The company will determine demand for its IPO during its “road show,” which kicked off Friday with the posting of Ի in New York. The road show presentation notes that Twitter plans to sell shares and begin trading the week of Nov. 4, and the company could choose to increase the price or number of shares offered ahead of that process.
“Shrewdly, the company has started the process very conservatively,” SunTrust Robinson Humphrey analyst Robert Peck, who ,. “Based on the investor interest we’ve seen, I wouldn’t be surprised to see the price go up 20 percent.”
Facebook, the IPO Twitter is most often compared with due to the similarity of their services and revenue generation, started out with a much wider range of $28 to $35 before going on its road show . After investors showed great enthusiasm for the offering, the Menlo Park company chose to add more shares to the pot and increase its price range to $35 to $38, eventually .
Twitter’s initial range gives it wiggle room to raise the price while likely avoiding the issues that caused Facebook to trade lower than its IPO price for more than a year. The original range “gives them room to move up the price without offending investors’ sense of value,” Rett Wallace, CEO of Triton Research,.
A more definitive test will be if Twitter decides to increase the size of its offering. Facebook , with all of the additions coming from early investors seeking to cash out part of their private stash of Facebook shares. In the end, Facebook offered 183 million shares while stakeholders offered 301 million, including the overallotment.
So far, no early Twitter stakeholders have chosen to sell stock in the company’s IPO, which would give in the public company. That could be important for two reasons: Twitter has chosen to establish a single-tiered stock system, so each share has the same say in control of the company, leaving large stockpiles as the only way to have an outsize influence; and it looks good to investors that those who picked the company early believe it will continue to prosper.
“You don’t see a big owner coming out and selling everything,” Suntrust’s Peck . “That shows conviction about the long-term prospects of the company.”
շɾٳٱ. After on the Nasdaq exchange, for its listing, and to ensure a smooth opening day. Twitter also goes public with strong, definable mobile revenues, while Facebook took more than a year to .
When deciding on whether to increase the price or size of its offering, Twitter will likely again err on the side of caution — and the other side of Facebook — by choosing one or the other if making a change.
“Raising both the price and the size was Facebook’s fatal mistake,” PrivCo CEO and founder Sam Hamadeh .
