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Twitter IPO blows through expectations on first day as stock almost doubles
Question of the Day
Twitter raised the bar for social networks with an initial public offering Thursday that far exceeded projections.
The popular microblogging site's stock nearly doubled in value on its first day of trading, closing at $44.90, up 72 percent from the company's IPO price of $26.
During the day, Twitter's stock price even briefly passed that of social-media rival Facebook, which closed down more than 3 percent at $47.56.
Twitter nearly doubled its own market value to $31 billion, brushing aside concerns of another Wall Street social-media flop like Facebook's disappointing debut in 2012.
"Twitter handled their IPO a lot better than Facebook did," said Jeff Kagan, an Atlanta-based technology analyst. "At the time, it looked like Facebook was a teenager operation, compared to Twitter, which was a typical, mature, well-run IPO."
But Twitter's early success comes with its own questions. Namely, investors are wondering how the 7-year-old company will turn a profit, something it has yet to do.
"With or without profit, the stock price is going to go up in the near future," Mr. Kagan said.
In the third quarter, Twitter reported a loss of $64.6 million, the biggest loss in company history.
But there are positive signs. Twitter reported revenue more than doubled from the same period last year to $168.6 million.
The number of monthly active users on Twitter also rose to 231.7 million, up 6 percent from the previous quarter — though Twitter remains roughly a fourth the size of Facebook, which has more than 1 billion users.
Facebook's overall valuation, $115 billion, also dwarf's Twitter.
Twitter does seem to be doing better on the mobile front than Facebook, which is important to investors who believe that is where the future of social networks is headed.
Internationally, Twitter is gaining popularity, but it has thus far been unable to sell enough online advertisements to businesses overseas.
"The only company that is really hitting a home run with online advertising is Google," Mr. Kagan said.
Investors are banking on the company's potential rather than its balance sheet, but now that Twitter is on Wall Street, the social network will face increased pressure to turn a profit.
Twitter tweeted "#Ring!" as soon as the markets opened at 9:30, but it wasn't until shortly before 11 a.m. that shares began trading — bringing back memories of Nasdaq glitches that caused delays during Facebook's highly-touted IPO.
But the nearly 90 minute Twitter delay came because the New York Stock Exchange had a backlog of orders to process before trading could begin — a good sign by Wall Street standards.
Any concerns of a Facebook-style meltdown were quickly erased.
Twitter, which is selling 70 million shares as part of its IPO, will raise $1.8 billion. Thursday's success boosted the company's market valuation to nearly $25 billion. Facebook is valued at $115 billion.
Twitter originally set a target price of $17 to $20 for the IPO before raising the range to $23 to $25 last week. It set the final price of $26 late Wednesday.
From the looks of things, Twitter could have set the price even higher. At one point, shares climbed as high as $50.09.
Twitter's underwriters wanted a higher IPO price, but company executives wanted a more conservative pricing point to allow room for growth on the first day of trading.
The stock was up even as the rest of Wall Street struggled Thursday.
The Dow Jones industrial average closed down more than 150 points, or nearly 1 percent, at 15,593.98. The S&P 500 index closed down more than 1 percent at 1,747.15. The Nasdaq composite closed down nearly 2 percent at 3,857.33.
As Twitter's stock shot up, the Global X Social Media Index ETF, a fund that includes many social networks, including as Facebook, closed down Thursday by more than 3 percent at $18.84.
The success of Twitter's rollout on Wall Street came in stark contrast to Facebook's May 2012 launch.
Facebook set its price at $38 a share, and within minutes of opening it rose to $45. But the stock closed just a few cents above $38, and continued to drop to below $20 in the months following.
"Facebook was a disaster when they went public," Mr. Kagan said.
The good news for investors is that shares of Facebook have since recovered, and the company is trading above $47.
Groupon set its IPO price at $20, but demand pushed it up, so that it hit the markets at $28 a share on Nov. 4, 2011. Three weeks later, it closed below the IPO price and never recovered. On Thursday, it closed at $9.50, about one-third of the original price.
Zynga has faced the same struggles as Groupon. The social-gaming company set the IPO price at $10 a share, and it hit the market with an opening price of $11 on Dec. 16, 2011. By the end of the day it was trading below that price, and it would never recover. On Thursday, Zynga closed at $3.46.
LinkedIn has been the big success story for social networks that go public. The professional social network company set its IPO price at $45 a share, but the excitement surrounding it meant that the stock began public trading on May 19, 2011, at $83 and rushed up to $122 during the first day of trading. Shortly thereafter, LinkedIn shares plunged to about $65.
The stock did rebound over time, and it closed Thursday at $211.47.
© Copyright 2014 The Washington Times, LLC. Click here for reprint permission.
About the Author
Tim Devaney is a national reporter who covers business and international trade for The Washington Times. Previously, he worked for the Detroit News, Grand Rapids Press, Portland Press Herald and Bangor Daily News. Tim can be reached at firstname.lastname@example.org.
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