San Francisco-based Twitter increased its proposed share-price range to between $23 and $25 a share, up from between $17 and $20 a share. That increases the potential size of the offering to $2 billion from $1.6 billion, assuming underwriters sell all offered 80.5 million shares at the higher price. At the top of the revised range, Twitter would have a market capitalization of as much as $13.9 billion, about 26 times its revenue over the past four quarters. That ratio is slightly above the 21 times trailing 12-months revenue Facebook Inc. FB -3.08% priced its own IPO. Twitter's IPO, scheduled for Wednesday, looks promising but investors shouldn't pay over $30 a share, Barron's Andrew Bary says on MoneyBeat. Twitter could raise the price of its offering once more. Under U.S. securities rules, Twitter could increase the amount of money it will raise by up to 20% without a new filing, either in the form of additional shares, or raising the share price. Facebook priced at the top of its revised range, at $38 a share. In meetings on Monday with investors, Twitter Chief Executive Dick Costolo said the company's current users are a small slice of its potential market—a point that some investors said countered worries about the higher price range. Jim O'Donnell, chief investment officer at Forward Management LLC, a $6 billion fund, said Twitter's estimate it has just 10% of potential users "gives you the hope that they can grow into the valuation," Mr. O'Donnell said. "That gives you plenty of runway over the next several years to grow the business at a very high rate." Laura Starr, a Minneapolis-based senior research analyst at Nuveen Asset Management LLC, which oversees $116 billion in assets, said, "the valuation, even at $25 doesn't look bad—it was much better at $17 to $20." She added that another range increase could cool investors' ardor for the stock. Unlike Facebook, which increased the price range and the number of shares it sold in its May 2012 IPO just days before its final pricing, Twitter so far hasn't added more shares to the offering. The company also hasn't released any insiders to sell shares; rather, all the proceeds of the deal are still set to go to Twitter itself. Twitter's offering comes amid a surge in the U.S. IPO market, which has already eclipsed each of the previous five years in terms of number of offerings and money raised—even with Twitter and some other high-profile deals yet to come. TD Ameritrade Holding Corp. AMTD +0.51% said on Monday it expected to receive Twitter shares from the underwriters, which it would then make available to customers of its online discount brokerage. A spokeswoman said it wasn't clear how many shares it would receive. The deals have generally seen strong demand from investors: Last week, four companies raised their target IPO price range just before their debuts, the most in a single week since December 2004, according to Dealogic. Twitter's new price range, a 30% increase from the midpoint of the original range, tops the 16% average increase in pre-IPO pricing this year, according to investment banking researcher Dealogic. Only 8% of U.S.-listed IPOs so far this year have raised their price ranges, though that is the highest share of deals since 2007, Dealogic said. During its recent investor roadshow, Twitter has faced a number of questions about its ability to sell ads alongside the tweets of its 230 million-plus monthly active users. The issue is important domestically and abroad, where Twitter doesn't generate as much revenue per user, according to people who have attended the meetings. On Monday, Twitter also disclosed it received a letter from International Business Machines Corp. IBM +0.58% alleging Twitter infringed on three patents. The IBM letter, according to the filing, alleges that Twitter has infringed on at least three patents held by IBM, including a "method for presenting advertising in an interactive service." Twitter responded that it believes it has "meritorious defenses to IBM's allegations." The companies plan to meet to discuss settling the dispute, said people familiar with the matter. It's not clear when the two companies might meet, or whether they could reach an agreement. According to the filing, the three patents cover "efficient retrieval of uniform resource locators," a "method for presenting advertising in an interactive service," and a "programmatic discovery of common contacts." Twitter said it currently has nine U.S. patents issued with about 95 more pending applications in the U.S. and overseas as of Sept. 30. Twitter employs an unusual intellectual-property strategy, under which employees retain the rights to their inventions, rather than assigning them to the company, as is the common practice. The policy says in part that Twitter can't pursue offensive litigation without the inventor's permission. —Spencer E. Ante and Douglas MacMillan contributed to this article. Source online.wsj.com
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