Twitter’s IPO – A First Look with Numbers! (Update 1)

The underwriters finally priced Twitter’s stock this week.

The $26 offering price for the Initial Public Offering (IPO) of Twitter, Inc. was finally announced.  The final prospectus, with numbers, was filed with the Securities and Exchange Commission (SEC).  We eagerly downloaded the prospectus and starting imputing Twitter’s balance sheet numbers into our computer.

Here is a first look at our calculated model price chart of Twitter, Inc.

Twitter, Inc.'s Initial Day of Trading (Black Price Bar) with calculated EBV Lines (colored lines).

Twitter, Inc.’s Initial Day of Trading (Black Price Bar) with calculated EBV Lines (colored lines).

Observables for our Model Price chart above

1.  The $26 IPO price put the valuation of TWTR in the valuation zone between EBV+5 ($20.50) and EBV+6 ($32.55).  To contradict my earlier views – as I warned readers at the time we were looking at a preliminary prospectus with no numbers – this valuation zone was not unreasonable.

2.  TWTR shares immediately traded over $45 when the IPO was freely traded on the New York Stock Exchange.  This trading price placed the valuation of the company just over EBV+7 or $43.88.

3.  The trading action of TWTR over the last day or so is reasonable in context of a high tech IPO.  Nothing seems out of the ordinary, in terms of valuation and model price metrics computed by Model Price.

4.  An interesting observation is that Twitter, Inc. (TWTR) with a market close of $44.90 and Facebook’s (FB) market close of $47.56 have an identical balance sheet valuation as of the close of trading on Thursday, November 7th, 2013.  Amazing.  Obviously our calculation of model price is different in that FB has earnings and TWTR is still forecasting losses.  But the ‘public markets’ value these two companies in an identical matter relative to each company’s balance sheet.

5.  As a reminder, Facebook financials did take several quarters to settle down in terms of final numbers in shares outstanding and balance sheet items.  We expect the same from Twitter, Inc.  We do expect the quarterly EBV numbers to be credible but a few quarters from now our model price chart and EBV levels could be different.

Conclusion

Contrary to my earlier belief, Twitter’s market valuation is credible.  Earlier I thought and based on my preliminary analysis TWTR was being IPO’d at an EBV level over EBV+8 and with the initial pop in the stock, to $45, trading almost to EBV+10 making TWTR one of the most expensive stocks in our database.  However this is NOT the case.

I do find it interesting and I hope you do as well that the market is valuing both Facebook and Twitter on the exact identical valuation based on each company’s balance sheet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s