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Is Twitter emulating Facebook with pre-IPO price bump?

Twitter ups its share price, making some analysts nervous about its IPO

November 5, 2013 03:51 PM ET

Computerworld - With a move that harkens back to the days before Facebook's IPO, Twitter has upped its opening stock price.

Twitter, which is expected to launch its initial public offering Thursday, raised its original price range late Monday from $17 to $20 per share to $23 to $25 per share. The offering size, however, remained the same at 70 million shares.

The social network moved to raise its stock price because of presumed strong demand among institutional investors during its pre-IPO roadshow, Reuters reported.

A final price for the IPO could be altered late Wednesday, with trading expected to begin Thursday morning.

Some analysts are concerned that Twitter could be following in Facebook's footsteps and heading down a bad road. Facebook raised its own IPO share price right before its own tumultuous and disappointing debut on the stock market.

Is it a bad sign that Twitter, which, opposed to Facebook, hasn't made a profit before its own IPO, is making a similar move?

"Twitter's initial price range made a lot of sense and seemed fair when compared to Facebook," said Patrick Moorhead, an analyst with Moor Insights & Strategy. "It looks like Twitter is making the same mistakes Facebook made by raising its price. They're like a kid that gets their first chance at driving... all giddy, then proceeds to plow the car into the guardrail."

However, Rob Enderle, an analyst with the Enderle Group, said Twitter is simply following the current market.

"I think it is high based on what the firm is actually worth, but the market is in a bit of a feeding frenzy, like it was with Facebook, so it appears achievable," he said. "The change was based on their investment tour, which either went incredibly well or they were played for fools."

Both analysts said they are concerned about how Twitter's stock will fair immediately after its IPO. Will it hold steady or will it, like Facebook, plummet and take about a year to recover?

"Their IPO looked promising given the prior combination of their low level of profitability with strong consumer usage at an appropriate price, but now I seriously have my doubts," Moorhead said.

Enderle is more certain of his doubts about Twitter's IPO.

"There is a lot of buzz and emotion surrounding the company, much like there was with Facebook, but even less business fundamentals," he added. "This company will likely become less profitable and report a higher loss right after the IPO, and that makes this IPO particularly risky for investors... Social media is a very dangerous place for the individual investor at the moment."

This article, Is Twitter emulating Facebook with pre-IPO price bump?, was originally published at Computerworld.com.

covers the Internet and Web 2.0, emerging technologies, and desktop and laptop chips for Computerworld. Follow Sharon on Twitter at Twitter @sgaudin, on or subscribe to Sharon's RSS feed Gaudin RSS. Her email address is sgaudin@computerworld.com.

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