Twitter has increased the price of its shares following ample demand from investors as it prepares for stock market flotation, but new information from the firm has shown it is currently fending off a patent dispute from IBM.
The computing giant claims Twitter is infringing three of its patents including one directly related to advertising, Twitter's main form of revenue.
The three patents in question are for
- a "method for presenting advertising in an interactive service",
- a patent relating to discovering friends on Twitter based on email contact lists ("programmatic discovery of common contacts")
- and URL shortening ("Efficient retrieval of uniform resource locators").
In its latest Securities and Exchange Commission (SEC) filing, Twitter said it was confident it can manage IBM's claims, but makes clear that this is not guaranteed: "We believe we have meritorious defenses to IBM's allegations, although there can be no assurance that we will be successful in defending against these allegations or reaching a business resolution that is satisfactory to us," it said.
The revelations highlight the fragile nature of young tech businesses who can often find themselves at the mercy of far larger firms with deep pockets and huge patent holdings.
Meanwhile, the micro-blogging firm has increased its initial share price to between $23 and $25 per share. It initially priced its shares at between $17 and $20. With this 25 percent increase, Twitter now values itself at $13.6bn if all its shares sold at the maximum $25 price. It is looking to raise at least $1.75bn from its initial public offering (IPO) which is expected to take place on 7 November.
The increase is positive news for the firm, which has been conducting the customary pre-flotation roadshow, with Twitter's chief executive Dick Costolo travelling across the US to convince investors his company is a "buy".
While Twitter may seem like a hard sell - with increasingly heavy losses of $64.6m featuring in its latest balance sheets - the company has a huge glut of potential revenue from the still growing advertising space. Furthermore, its active user base is going up with 218 members logging on every month, together sending 500 million tweets every day.
Costolo will have to convince investors that his firm's losses will eventually lead to profit as Twitter looks to build a more reliable, stable and advertiser-friendly network as investment in personnel and infrastructure ramps up.
When Twitter eventually lists on the stock market, it will hope for a smoother transition from private to public than Facebook, whose 2012 IPO was beset with technical glitches and delays, with some investors still looking for compensation.
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