Twitter (TWTR: NYSE) is poised to raise more than $2bn (£1.25bn) after increasing the price range of its initial public offering by 25 per cent in response to huge investor demand, making it the largest and most anticipated initial public offering of a technology company since Facebook (FB: NASDAQ).
The microblogging network will look to avoid the mistakes made by its social networking rival last year when Facebook was accused of over-hyping and over-pricing its shares and saw trading delayed for hours on its debut due to technical glitches with the exchange. Facebook's shares then halved in value over the next few months as investors fretted over the company's ability to monetise mobile advertising, although they have since recovered and now trade well above the float price.
At the time of going to press, Twitter's shares were to be priced at $26 each, giving the company a valuation of up to $18bn, including restricted stock units and options. This is much smaller than Facebook's $104bn valuation following its IPO, but Twitter - in contrast to Facebook and Google (GOOG: NASDAQ) when they went public - is not yet profitable. Google had been profitable for five years when it floated in 2004, raising £1.9bn at the time. By contrast, Google was forced to cut its offer price in the run up to its float but its shares have performed strongly over the intervening period, rising more than tenfold to break through the $1,000 barrier recently.
Twitter only started trying to monetise its platform in 2009, and has increased revenues from virtually nothing to over $300m in 2012. Bullish analysts argue Twitter still has a vast number of opportunities to bring in new commercial revenue streams and believe Twitter could follow a similar earnings growth path to LinkedIn (LNKD: NYSE); the business-oriented social networking site has surprised to the upside in monetising its platform and has had a very successful start to life as a public company.
As this chart from CMC Markets demonstrates, however, it is no easy feat to deliver against raised expectations following a high-profile IPO.
