Specialist Glenn Carell, who will handle the Twitter IPO, works at his post on the floor of the New York Stock Exchange, Thursday, Nov. 7, 2013.Richard Drew/The Associated Press
Here it is: Twitter has gone public at $26 (U.S.) a share, valuing the social media company at more than $17-billion and marking the biggest initial public offering in the social media space since Facebook Inc.'s launch, in 2012. Twitter is set to start trading on Thursday morning in New York, using the ticker symbol TWTR. Here are a few things to consider before jumping on the stock.
1. The warning shot: The Securities and Exchange Commission is begging you to consider the risks. Okay, maybe that's my interpretation. But the SEC's chair, Mary Jo White, picked the day before Twitter's launch to warn that technology companies with oodles of users won't necessarily be able to generate big profits from them.
"Consider a company that correctly claims it has a hundred million users, and that the rate of user growth is expected to continue to grow at double digit rates," she said in a speech on Wednesday, without referring to Twitter itself.
"But what if only a fraction of those users are paying customers? What does that mean for future financial results? What if the bulk of the growth in the number of users is in an area where the company has not yet figured out how to turn those users into paying customers?"
Good questions for a company that has 230-million monthly active users, but no profits.
2. Investors have short memories. Facebook's IPO was a flop, partly because of trading glitches that affected the first day's activity – but largely because the share price slid below the offering price within the first week and remained below the offering price for over a year. IPOs bad!
But maybe that is ancient history: Faceook shares are now nearly 30 per cent above the IPO price. IPOs good?
3. The social media space is getting crowded. Early investors in social media stocks had few names from which to choose, and they were always looking over their shoulders at the next hot company preparing to IPO. Now, there is a good selection, with standouts that include LinkedIn Corp., Groupon Inc., Facebook and now Twitter – enough to give the Global X Social Media index exchange-traded fund some heft.
Selection is good. It gives investors more choice and it makes it easier to compare the various companies on valuations (see Scott Barlow's excellent piece on tech valuations here) and how well they are succeeding in generating money from their millions of users. But selection also means that companies are going to be judged far more harshly on their ability to generate meaningful growth and profitability.
Add it up and what have you got? Twitter is a stock for the brave – or, at least, for investors who are confident that these are early days in its transition from nifty social media tool to profitable behemoth. Either way, the first day of trading is bound to be fascinating.
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