Twitter Inc (NYSE:TWTR)’s underwriters are really selling the company ahead of its initial public offering. USA Today’s Alistair Barr reports that one of the top underwriters for Twitter’s IPO says the micro-blogging site’s revenue will double and its profits soar by 2015.
Twitter could see $950 million in revenue in 2014
Two potential investors who spoke with USA Today said the underwriter told them that Twitter Inc (NYSE:TWTR) could generate approximately $620 million in revenue and make $40 million in adjusted EBITDA this year. And next year, the company could see its revenue climb to approximately $950 million with an adjusted EBITDA of approximately $80 million, according to the underwriter.
These forecasts are supposed to be private, so the investors chose to remain anonymous and did not say which underwriter gave the forecasts. Goldman Sachs Group Inc (NYSE:GS) is leading Twitter’s IPO, and a spokesperson for the bank would not comment on the story. Morgan Stanley (NYSE:MS), which is also leading Twitter’s IPO, also didn’t comment on the story.
Projecting Twitter’s earnings
It’s pretty common for underwriters to release projections like these to investors who are interested in purchasing shares at an IPO. These estimates are meant to offer guidance for investors about just how profitable the company they are considering investing in will become in the near future. It is these projections which help put a valuation on a company and tell investors how much they would be willing to pay at the company’s IPO for shares.
These forecasts made by underwriters are not released publicly via regulatory filings or even during road show meetings. This is because they want to avoid facing legal troubles later if the guidance provided by the firm ends up being wrong.
How quickly is Twitter growing?
In the case of Twitter Inc (NYSE:TWTR), the underwriters are painting a picture of a high growth company which is also spending heavily. However, they seem to be saying that spending will decline in 2015 while revenue surges. The forecasts provided by the underwriters estimated EBITDA margins of about 6.5% this year and 8.4% next year. But by 2015, they estimate that margins could climb to 16%.
Twitter Inc (NYSE:TWTR) increased its IPO price range on Monday to between $23 and $25 per share, indicating that it is seeing strong interest before it debuts on the stock market, which will likely be Thursday. There was also another report suggesting that the company could raise it even further. Goldman Sachs has reportedly already stopped accepting orders for Twitter shares because the firm already has enough orders to make it oversubscribed by about 10 times.