Why Twitter Went With Such a Low IPO Price

Aim is to be like Linkedin, not Facebook, at least in rollout

That blue Twitter bird should be saying, “cheap, cheap.”

The stock and value of the company are looking low to some, as the company prices shares ahead of its public offering set for early November.

Twitter told investors it will sell its stock between $17 and $20 when it starts trading on the New York Stock Exchange under the ticker symbol TWTR. At the midpoint of that range, $18.50 a share, Twitter would be valued at $14 billion by some measures. Social media rival Facebook is currently valued at $130 billion.

The reason for the difference in value is clear: Facebook is on pace to top $7 billion in revenue this year, and Twitter is set to take in close to $600 million.

Still there is a case to be made that Twitter is selling itself at modest valuation, and could be worth much more.

Robert Peck, managing director at SunTrust Robinson Humphrey, has pegged Twitter shares at $50, which would value the company at more than $30 billion.

If Wall Street agrees, then the IPO should be an easy sell, and Peck told Adweek that he has seen plenty of demand for Twitter shares among investors.

Today, Twitter’s top executives, including CEO Dick Costolo, visited the sales teams at Goldman Sachs and other banks handling the public offering, a source confirmed. Twitter is kicking off a roadshow next week to fully make its pitch to investors to buy its stock. The road shows will include stops from New York to San Francisco.

Peck predicted that demand for Twitter stock could push the stock offering price to $24, which would value the company at about $17 billion.

Peck bases his valuation on 700 million shares, which includes all outstanding options and restricted stock. Twitter will sell 70 million shares in the offering, raising about $1.4 billion, and its banks will have the option to sell 10.5 million more, raising another $200 million.

None of Twitter’s insiders, like Costolo or founders Evan Williams and Jack Dorsey, are selling stock in the offering, which typically boosts investor confidence to see company leaders not rushing to sell.

Twitter and its bankers have taken every opportunity to conduct the IPO differently than Facebook handled its public debut. The conservative selling price reflects that approach. Facebook went public at $38 a share, increasing the price dramatically over the course of its IPO process. Shares ultimately tanked after the company went public in May 2012, but they have since taken off after a year of languishing.

Twitter and its bankers are hoping for a launch that follows the LinkedIn model even if it means selling shares at a lower price and raising less money for the company.

LinkedIn went public in May 2011 at $45 a share and now trades at $240.