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Twitter's Post-IPO Life Will Be About Communicating Profits

NEW YORK (TheStreet) - It's almost ironic that as Twitter moves toward an initial public offering, the 230-million member plus micro-blogging site is limited in what it can say about its financial prospects. Once the San Francisco-based company lists its shares, however, it will enter a phase where its performance will hinge on communications from top executives such as CEO Dick Costolo.

It is a subtle distinction, which may prove a helpful way of thinking about Twitter ahead of its initial public offering. Twitter is looking to sell 70 million shares, in an offering that is initially being priced at between $17 and $20 a share.

An offering at the high-end of those prices would value Twitter at roughly $10.9 billion, given a share count of 544.7 million outstanding shares.

Twitter is currently in a "quiet period" as it moves toward an expected Nov. 7 IPO, which restricts the company's communications about its business to the wider public.

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The social network continues to hum with today's news and ideas. It's also presenting a business model to prospective investors in so-called "road shows" across the country leading up to its offering on the New York Stock Exchange (NYX). By all accounts, Twitter has kept its road show a relatively tame affair when compared to the excitement surrounding Facebook's (FB - Get Report) cross-country investor excursion ahead of its blockbuster May 2012 IPO.

According to Jeffrey Sica, president & chief investment officer of SICA Wealth Management, a recent Twitter road show presentation was a "wet blanket," meaning the company may have tried to curb expectations by detailing how the company will seek to convert its users into profits.

Twitter also didn't talk much about how it would seek revenue beyond targeted ads that the company has rolled on desktops and mobile devices out in recent years. That will likely come after Twitter's IPO. "There wasn't really much that needed to be said because they are coming out at a fair valuation," Sica said.

For now, Twitter is likely to impress enough investors by the sheer size of the network's scale and its burgeoning base of revenues, according to Sica, who sent analysts and portfolio managers to Twitter's Oct., 28 presentation in Philadelphia. He expects that Twitter's offering will be over-subscribed.

Managing investor expectations may prove to be a smart strategy for Twitter ahead of its IPO. Recent comments from newsmakers as prominent as David Einhorn of Greenlight Capital and Lawrence S. Fink of BlackRock indicate some markets may be getting a bit frothy as investors chase risky assets.

"I think right now there definitely is a large amount of enthusiasm and excitement when it comes to markets," Scott Kessler, an equity analyst with S&P Capital IQ said in a Friday telephone interview.

Kessler valued Twitter at between $11.3 billion and $13.7 billion, in a comprehensive Oct. 28 analysis of the company's share offering. While Twitter offers a differentiated and globally scaled communications product from competitors such as Facebook and LinkedIn (LNKD), Kessler believes the company may not have as broad an appeal as some in the media and investor community believe. Meanwhile, the company isn't profitable and Kessler expects losses through 2014.

"Ultimately, we see considerable growth and opportunities and considerable uncertainties and risks, and believe the public valuation for Twitter could be stretched from the start," Kessler concluded. A lot of Twitter's perceived value or lack thereof will depend on the company's IPO pricing, which is expected to be set on Wednesday evening.

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