Surged out of the gate to brake the $50 mark early in its first day of trading. This is near double the initial price of $26/share set by the company. The Twitter IPO is coming in the wake of Facebook’s “disappointing” performance since its first trading day about a year ago. Facebook’s initial offering and the year of trading that followed may account for the conservative initial price of $26/share set by Twitter.
Due to the historically less than eye-popping profitability, critics may speculate about a potentially poor future for those who decide to invest in the company. Defenders of the company, along with the CEO Dick Costolo, might argue however, that Twitter is in a position to make the necessary adjustments to ensure future growth and sustainable profits. One thing is certain, at the present moment the company is very popular and does control the attention of a significant number of individuals. For better or for worse, social networking seems to be here to stay, and Twitter has found itself one of the recognizable faces in that arena of society. As for its ability to turn that position into sustained profits, we will all have to wait and see. For now we only have an IPO and one trading day of data to base our opinions on.
As is well known in the industry today, the IPO process and the financial securities world, is designed similar to any other retail industry. The product being manufactured and sold here however is ownership (in the form of stock/shares). So, the $26 price initially set by Twitter would amount to the products “cost of production,” although when it comes to shares one would have an interesting time determining exactly how the pricing of fractional ownership is arrived at. Then there is the stocks initial opening or sales price, what could be equated with the “MSRP” in the retail world.
The retailers in this case are the investment banks and large institutions which have purchased shares from the manufacturer (in this case Twitter and its insiders). So the profit margin equates to the difference between the price the stock is underwritten at and the opening price of the stock upon its IPO. Upon understanding these fundamentals it becomes apparent that what is good for the company and its insiders is not necessarily good for the underwriting banks and institutions which are attempting to make a profit upon the sale to the public. But even more apparent should be the stark realization that what is good for both the company and the underwriters is a benefit that is paid for by the individual investor which finds himself a member of the “general public.”
The factors at play vary depending on a person or groups position within this process. The company and its insiders, in this case Twitter, do not want to undergo the same trials that Facebook has endured since its IPO. Therefore they seem to have been a bit more conservative in their initial price of $26/share. The investment bankers and large institutions are hoping and praying for a significant margin between their acquisition price of $26 and the price which the public is willing to initially pay to acquire the shares. The larger this jump or “pop” in the share price, the larger the parties become for the men in their ‘ivory towers” of wall street. The larger the parties for the wall street whales, the less likely the average Joe of “main street” enjoys a party of his own in the future.
It would take a true optimist to believe that a win-win-win is possible in this situation, however, individuals have been convinced of far less likely things. As of late, individuals have been somewhat painlessly convinced that giving up freedoms will somehow lead them to security, and that continued borrowing or spending can somehow lead to prosperity. So with logic like this, a win-win-win is certainly not an impossible concept to imagine with regards to the securities-selling process. That being said, time will ultimately determine the winners and losers in this new phase of Twitters “life.”
By Daniel, Worku