Twitter set to make a splash on Wall Street

A man walks past a Twitter banner while leaving JP Morgan headquarters, before the firm's IPO in New York, on Oct 25, 2013. -- FILE PHOTO: REUTERS
A man walks past a Twitter banner while leaving JP Morgan headquarters, before the firm's IPO in New York, on Oct 25, 2013. -- FILE PHOTO: REUTERS

NEW YORK (AFP) - Wall Street is aflutter over Twitter, set to make the most anticipated stock market debut since Facebook in a huge test for social media and the technology sector.

No official date has been set, but Twitter appears on a fast track which could see its initial public offering priced as early as Wednesday for trading on Thursday, according to some reports.

The company will trade under the "TWTR" symbol on the New York Stock Exchange, breaking from the Nasdaq market used by a large number of tech companies.

There is considerable excitement about the IPO because Twitter is "a unique product that no one can replicate," said Michael Pachter, head of equity research at Wedbush Securities.

Pachter and his colleagues said in a research report that they expect high demand.

"We believe that the market is likely to generate appetite for more than US$1 billion (S$1.24 billion) in stock," they said.

"The simple rules of supply and demand suggest that by limiting the supply of shares offered to the public in its IPO, Twitter will be unable to satisfy demand."

And Twitter appears to have learned a lesson from Facebook's debacle in May 2012, marked by trading glitches, accusations about secret information and a plunge in the share value for months after the IPO.

"The Facebook situation last year was a perfect storm of an overheated private market, a fully priced offering, a massive amount of shares brought to market, all compounded by an historical technical glitch," said Lou Kerner, founder of the Social Internet Fund.

"That confluence of events is not likely to occur again."

As of its latest update, Twitter will seek to raise up to US$1.6 billion - one tenth the value of the Facebook IPO - by offering 70 million shares in a range of US$17 to US$20.

That is a relatively small chunk of Twitter's capital, and implies a market value between US$9.3 billion and US$11.1 billion - a conservative figure compared with some of the private market trades in Twitter so far.

Analysts say Twitter, unlike Facebook, will not flood the market, and that with demand exceeding supply the price will rise.

The early Twitter investors may not get maximum value right away, but could benefit over time from a rise in the share price.

Twitter does have a star quality that is likely to fuel interest, because it is a key platform for celebrities, politicians and journalists.

In its investor presentation, the company used President Barack Obama's widely retweeted message of "four more years" after his 2012 re-election, and noted how activist investor Carl Icahn's single tweet about buying Apple shares moved the stock market.

A crucial question for Twitter, as for Facebook, is how deftly the company is able to monetize its platform.

Twitter has some 232 million active users around the world, but has lost money steadily since 2010, according to IPO documents. The losses amounted to US$133 million on $422 million in revenues in the first nine months of the year.

Twitter makes most of its money from advertising, chiefly in the form of "promoted tweets."

A recent revamping of its display opens the door to bigger display-type ads.

The investment firm Sterne Agee notes that "Twitter's scale and deeply engaged user base create valuable opportunities for advertisers to leverage the platform."

Analysts point out that Twitter can allow companies to advertise for free, or pay for promoted tweets and benefit from analytics that target people based on their interests and profiles.

"Twitter is a niche business that will not likely be used by 'everybody' vs. Facebook, which essentially is," said a report from Pivotal Research Group analyst Brian Wieser.

"However, at the same time we expect that advertisers will continue to value Twitter for its unique attributes and should conceivably allocate budgets from sources intended towards digital goals."

But the report goes on to say that Twitter faces big risks including "a relatively unproven advertiser proposition, the prospects of wild swings in investor sentiment, difficulty scaling the business profitability, rush sellings at a time when early investor lock-ups expire (and) government regulations primarily related to privacy."

Still, Pivotal sets a target price of US$29 a share, or 46 percent above the high end of the offering price range.

Others note that it is hard to evaluate Twitter's financial potential because three-quarters of its users are outside the United States where digital advertising is just taking hold.

"Many international ad markets are years behind the US in terms of the maturity of the digital ad market," noted Hillside Partners, an investment firm specializing in technology companies.