Twitter stock closes up 73% in New York

Thursday 07 November 2013 21.58
Twitter Inc soared as much as 92% on its first day of trading on the NYSE
Twitter Inc soared as much as 92% on its first day of trading on the NYSE

Twitter Inc shares rose 73% in a frenzied trading debut that drove the seven-year-old company's value to $25 billion.

The stock closed its first trading day at $44.90 a share from the initial public offering price of $26 set late yesterday, falling back from a near-doubling in price at a session high of $50.

Investor enthusiasm for the microblogging company defied traditional valuation analyses.

The shares traded at about 22 times forecast 2014 sales, nearly double the multiple at social media rivals Facebook Inc and LinkedIn Corp, even though Twitter posted a loss of almost $70m for its most recent quarter.

Yet fans believe that Twitter, which has 230 million users globally, has established itself as an indispensable internet utility, alongside Google Inc and Facebook.

"When people use Twitter they are following certain people, they're searching for specific information," said Mark Mahaney, an analyst at RBC Capital Markets.

"There are powerful marketing signals that are almost Google-esque, something that Facebook doesn't really have."

The IPO was shadowed for months by Facebook's troubled 2012 debut, in which the shares quickly fell below their offering price amid trading glitches and subjected the company and its lead banker, Morgan Stanley, to accusations that they had been greedy in pricing the deal.

Twitter's opening appeared to go off without a hitch, prompting Anthony Noto, the Goldman Sachs banker who led the IPO, to write a simple Tweet: "Phew."

Still, Twitter may find itself subject to the opposite criticism, that it had priced the shares too low and left more than $1bn on the table.

"In my mind they certainly could've raised the price on this thing and gone into the low 30s," said Ken Polcari, director of the NYSE floor division at O'Neil Securities.

"From an outsider looking in I would say they were overly cautious because they didn't want a disaster on their hands ... I'm sure the company didn't want a Facebook debacle, I get that, but I think they were overly cautious and it cost them some money."

Heavy demand for the IPO shares was apparent before the final pricing.

Market sources said investors had asked for 30 times the 70 million shares on offer in the IPO, representing about 13% of Twitter's outstanding common shares.

Twitter could raise $2.1bn if an underwriters' over-allotment is exercised, as expected, making it the second largest internet offering in the US behind FacebookInc's $16bn IPO last year and ahead of Google Inc's 2004 IPO, according to Thomson Reuters data.

The NYSE, which snatched the listing away from its tech-focused rival, Nasdaq, marked the occasion with an enormous banner with Twitter's bird logo along its Broad Street facade.

Twitter executives including Chief Executive Dick Costolo and the three co-founders - Evan Williams, Biz Stone and Jack Dorsey - appeared on a packed exchange floor to witness the debut.

At current valuations, the stakes owned by Mr Williams and Mr Dorsey would be worth around $2.7bn and $1.1bn, respectively.

Mr Costolo, who invested $25,000 in the fledgling company in 2007, holds a 1.4% stake worth about $360m.

British actor Patrick Stewart, of Star Trek fame, rang the opening bell at Big Board together with nine-year-old Vivienne Harr, who started a charity to end childhood slavery using themicroblogging site.

"I guess I represent the poster boy for Twitter," Stewart said, adding that he had only been tweeting for about a year.

The public debut is the latest milestone for a service that was born out of a nearly-defunct startup in 2006 and was derided by many in its early years as a silly fad dominated by people talking about what they had for breakfast.

But Twitter quickly began to penetrate popular culture in unexpected ways, with its open design and broadcasting format attracting celebrities, athletes, politicians and anybody who wanted to share short, punchy thoughts with a digital audience.

Its business potential developed more slowly, and the company appeared to be floundering as recently as three years ago, when it was riven by management turmoil and frequently crippled by service outages.

The three most-followed accounts belong to a trio of popstars: Katy Perry, Justin Bieber and Lady Gaga. (US President Barack Obama comes in fourth.)

As Twitter's stock soared after the opening, the company's market value, including restricted share units and other securities that could be exercised in the coming months, was over $28bn.