Social media users can debate whether Facebook(FB) or Twitter is a better place to post a picture of their kid or a snarky comment.
Agence France-Presse/Getty Images Now, investors are having a similar conversation: Which platform offers them a better value for their money?
Based on IPO price versus pre-IPO price, Twitter Inc. is taking a more-conservative approach to pricing than Facebook Inc. did. But by some measures, Twitter is being pitched to investors at a price that may make it appear more expensive than Facebook stock is right now.
The microblogging company has proposed an initial public offering price below where some investors already own the stock, and below where the company earlier this year pegged its own value.
Twitter's initial pricing range, $17 to $20 a share, sits just below where Twitter said it was valued in early September: $20.62 a share, based on private market transactions, the company said in its IPO filing.
It also sits below the levels at which some mutual funds marked their pre-IPO Twitter investments as of Sept. 30, at as much as $24.37 per share, according to public documents.
In contrast, the upper end of Facebook Inc.'s initial IPO price range in May 2012 was well above its pre-IPO peg of its valuation.
Facebook set its initial IPO price range from $28 to $35 per share. The company had valued itself at $30.73 a share in January 2012. Facebook eventually priced its IPO at $38.
Using another measure for Twitter’s size, enterprise value, it is being pitched to investors at a valuation cheaper than where Facebook trades. Enterprise value represents a stock market capitalization minus a company's cash, plus its outstanding debt.
Measuring enterprise value against last-twelve-month sales puts Twitter at a discount of about 17% to Facebook, according to Rett Wallace, chief executive of Triton Research, a private-company research firm in New York.
But different assumptions about how to assess value can change the view of what's cheaper, observers said.
Brian Hamilton, chairman of Sageworks Inc., a private company data provider, looked at a measure of stock-market value to last year’s sales, which uses the company's market capitalization without adjusting for cash. Cash can help many young tech companies appear to be cheaper, because they tend to have lots of cash relative to their market cap.
By that measure, Twitter appears to be going public at a 38% premium valuation to where Facebook stands now, he said.
Some also suggest that factoring in things like the stock given to mobile ad firm MoPub Inc. when Twitter acquired it, share grants that will vest, or future stock that employees could create by exercising their options, could make Twitter seem expensive relative to Facebook.
Mr. Wallace, who noted the contrast on the enterprise-value-to-sales measure, found that including Twitter's additional potential shares, known as the “fully diluted” share count, could give the company a higher valuation that may make it look less attractive relative to Facebook today.
Twitter has about 150 million shares that could later be created, according to figures in the prospectus. That could add $3 billion to the valuation, bringing it to $14 billion, based on the $20 top of the projected price range.
"The dilution is huge," Mr. Wallace said. "And it appears that many of the options are already in the money," he added, referring to the fact that the options were granted at prices below where Twitter's stock is likely to trade, meaning they will likely be exercised and become shares.
Some investors also questioned whether comparing Twitter's price to Facebook's was wise, given that Facebook and other social media stocks have traded at an all-time high in the past week.
“We’re looking at Twitter going public at a time when valuations are very favorable. It would not be surprising for it to look cheap,” said Rick Summer, senior stock analyst at Morningstar. “The question is whether that same optimism is warranted" for Twitter.
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