The microblogging site, Twitter generated investment capital more than what it expected to get in its first day of trading. Initially priced at $26 per share, Twitter ended the day with a $44.94 per share. The company hiked its market capitalization to $24.48 billion. This was a first-day closing price of 73% more compared to its original price per share offer.
Twitter opened the day strong at $45.10 per share and remained in that figure for most of the day. For a brief while it reached $50 but settled back again at the $45-$47 range before holding firm at $44.94 just before the trading day ended.
In a report by CNET’s senior writer Daniel Terdiman quoting AllThingsD’s Kara Swisher, the first day jump is normal. However, the same report also mentioned that the average first day rise for US-listed Initial Public Offering (IPO) for 2013 is 17%, Twitter on the other hand increased its value by 73%.
Twitter is undeniably a leading microblogging site with more than 230 million average monthly users around the world. Microblogging is different from regular blogging because users can only post short messages and sentences. In the case of Twitter users are limited to 140 character messages.
Investors Consciously Overlook Twitter’s Non-Performance Record
Despite this seeming popularity, Twitter is still not generating profits from its operations. In fact, the seven year old company in its first nine months of operation for 2013 lost $133 million already.
This obvious non-performance of Twitter is at best blamed on its questionable business model. The US market generates 75% of its revenue but 78% of its current users come from abroad. This means that in the US, the company makes $2.58 per 1,000 timeline views but when the non-US figure is factored-in it significantly drops to just $0.36 cents per 1,000 timeline views. The demand for Twitter stock remained strong notwithstanding these details. In fact, 113.6 million shares were traded on its first day.
Twitter Learned from Facebook IPO Mistakes
Twitter is often compared to another social networking giant Facebook. There are similarities between the two companies but they are also not entirely alike. For one, Facebook has 1.15 billion users as of today and its market capitalization is $115.58 billion or 4.7 times more compared to Twitter.
Jack Dorsey, Twitter’s executive chairman and his team obviously did their work and avoided the IPO mistakes of Mark Zuckerberg. Facebook’s IPO debacle last year can be traced to the following reasons: Firstly, the delayed kick-off caused trading errors allowing investors and traders to loose funds in the initial transaction. Affected investors and traders sued Nasdaq for this.
Secondly, Facebook due to enthusiasm decided to boost the number of shares at the last minute. This on the spot overhauling actually caused its shares to drop. It took more than a year for its stock price to fully recover from this and achieved normalcy.
Twitter expects to fund future projects with this IPO. Goldman, Sachs & Co., Morgan Stanley, J.P. Morgan, BofA Merrill Lynch and Deutsche Bank Securities managed the offering for Twitter.
By Roberto I. Belda