Twitter Sets I.P.O. Price at $17 to $20 a Share

Thursday’s amended prospectus by Twitter signals the quickly approaching conclusion of the metamorphosis of the six-year-old micro-messaging service into a publicly traded company, one that has been in the works for months. The price range is the last major piece of information that Twitter will disclose before it kicks off a road show for investors on Monday.Dick Costolo, chief of Twitter. The company’s road show for investors begins on Monday.Peter DaSilva for The New York Times Dick Costolo, chief of Twitter. The company’s road show for investors begins on Monday.Company executives and their advisers will crisscross the country in a series of meetings about the offering, beginning in Baltimore and Washington, before moving on to New York City, Boston, Chicago, San Francisco, Los Angeles and Denver. In addition, top management is expected to roll out a video presentation, available to individual investors on the Web.Twitter has also moved up the pricing of its offering by more than a week, to Nov. 6. That means that the social network would then begin trading on the New York Stock Exchange, under the ticker symbol TWTR, the next day.After the offering, insiders and early large investors will still control more than half of Twitter’s stock, the company said.The relatively low price range came as a surprise to some analysts, who had been expecting Twitter to seek several more dollars a share as it continues to show significant business growth. In August, the company valued itself at $20.62 a share. One analyst, Robert Peck of SunTrust Robinson Humphrey, has already predicted that the company would reach $50 a share by the end of next year.In a telephone interview on Thursday, Mr. Peck said that since his first report, he had seen strong interest from potential investors in the stock and Twitter is very likely to increase its offering price above $20 a share.“Shrewdly, the company has started the process very conservatively,” he said. “Based on the investor interest we’ve seen, I wouldn’t be surprised to see the price go up 20 percent.”Twitter and its underwriters still have the option of raising the price of the I.P.O. before Nov. 6 if investor appetite proves ravenous. One of the main concerns that has haunted deal makers is a repeat of Facebook’s botched market debut in 2012, when it was troubled by technical problems and criticized by some investors as being priced too high at $38 a share. 

Bankers say that issuers now would rather price a little low, risking a relatively high “pop,” or a jump in price on the first day of trading, to ensure that the shares trade well on their debut.Analysts say that Twitter deserves a high valuation because it is growing fast. In the third quarter, for instance, its revenue doubled to $168.6 million from the period in 2013. At such rates, Twitter could end up posting more than $1 billion in revenue next year. In that case, an I.P.O. valuation of $11 billion would mean Twitter would start trading at 11 times next year’s sales. Facebook, which has far more users but slower growth,thermos flask is trading at nearly 13 times analysts’ estimates of next year’s revenue.At some point, investors will want to do valuations based on Twitter’s profits. But since the company currently loses money,vacuum flask under generally accepted accounting principles, such an exercise is impossible.One workaround is to use what Twitter calls adjusted earnings before interest, taxes, depreciation and amortization, or Ebitda, which also excludes the costs of paying employees in stock. By that measure, the company earned nearly $50 million in the 12 months through the end of September.Facebook trades at about 32 times the $4 billion in Ebitda that analysts expect this year. Applying that multiple to Twitter’s adjusted Ebitda, however, yields a valuation of just $1.6 billion.Moshe Cohen, an assistant professor of finance and economics at Columbia Business School, said there were many questions about Twitter’s business model, and particularly what it means to be an active user and how much return advertisers are getting from those users.One research firm, Rapid Ratings, pronounced Twitter’s finances “very weak” in a report last week. Its chief executive, James H. Gellert, said in an interview that the company was losing money steadily and spending very heavily on research and development.beilin-bearingThe company reported a net loss of $134 million for the first nine months of this year,vacuum bottle and spent $199 million on research and development during that period.So far,united-promo the social network has seen little return on that investment.Twitter’s ad model, which inserts sponsored messages in the normal 140-character ones that Twitter users generally see, has promise, Mr. Gellert said. But the company’s heavy research spending is going to set high expectations for future performance.“For the typical investor looking at this, they need to be conscious that it will be starting out at a low financial health level,” Mr. Gellert said. “Mobile advertising is still in its infancy, but it’s yet to be proved whether in this format, whether it can be valuable,” he said.Mr. Peck disagreed, saying that the returns on those investments will come.“It reminds me a little of Facebook — they were spending a lot and spending a lot, and then in the second quarter of this year, it really took off,” he said.