Twitter Pitch to IPO Investors Hinges on Future Growth Potential

Friday, 25 Oct 2013 02:48 PM

 

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Twitter Inc. will make the case to potential investors in its initial public offering that it needs to keep spending to grow, and profit will come once it can reap the benefits of those investments.

“The magnitude of our investments has limited our margins,” Chief Financial Officer Mike Gupta said in a video posted to accompany the investor road show, which begins next week and will take Gupta and Chief Executive Officer Dick Costolo from their San Francisco home to cities including New York, Denver, and Chicago. “In the near term we will continue to invest aggressively to capture this opportunity and position ourselves for long-term success.”

Gupta and Costolo are meeting in New York with IPO underwriters Goldman Sachs Group Inc., Morgan Stanley and JPMorgan Chase & Co. to practice their presentation, people with knowledge of the plans said. At JPMorgan’s headquarters on New York’s Park Avenue, two banners with the company’s logo and the words “Twitter IPO 2013” adorn the lobby today.

Twitter is seeking to raise as much as $1.4 billion in the IPO that would value it as high as $10.9 billion. The company, which has more than 230 million users compared with Facebook Inc.’s more than 1 billion, is still unprofitable, as it spends to improve its advertising products and grow its user base in international markets.

Profit Message

The company will point toward an adjusted measure of earnings before interest, taxes, depreciation and amortization to signal its profitability, Gupta said in the presentation. The adjusted Ebitda excludes the effects of stock-based compensation and investments in servers, leases and networking equipment to support the company’s expansion, the company’s filing showed.

“We believe we have the ability to significantly expand our margins as we see returns on our investments,” Gupta said. Gross margins can reach the high 70 percent range, while adjusted Ebitda could reach 40 percent, he said.

Adjusted Ebitda was $9.3 million in the quarter ended Sept. 30, compared with $2.9 million a year earlier. Without any adjustment to exclude expenses, the company’s loss expanded to $64.6 million in the quarter from $21.6 million a year earlier.

Twitter will hold meetings in New York on Tuesday and Wednesday of next week, Boston on Thursday, and Chicago on Friday, according to a schedule obtained by Bloomberg. The following week it will visit investors in San Francisco on Nov. 4, and Los Angeles the next day, before ending up back in New York on Nov. 6, the same day the final pricing of the shares is scheduled.

© Copyright 2014 Bloomberg News. All rights reserved.

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