In filings with the Securities and Exchange Commission on Tuesday, Twitter, Inc. said that it is taking its initial public offering to the New York Stock Exchange, rather than the Nasdaq (NDAQ) exchange, dealing a blow to the smaller exchange that hoped to win its favor. The social media company intends to list under the ticker “TWTR” with its reported $1.0 billion to $1.5 billion IPO. The exchange choice has to make one wonder if the decision had anything to do with the debacle of the heavily anticipated IPO for Facebook (FB) in May 2012.
The abridged version of the Facebook price story goes like this: The IPO price was first expected at a low end of $25 per share, which eventually was set at $38 per share on huge investor appetite. Shares gapped up to start trading at $42 and ran to about $45 on the IPO day mired in chaos (delay to the of opening trading and other trading disruptions as Nasdaq’s system couldn’t handle the volume) before closing back near the $38 mark. In subsequent months, shares plunged to a low of $17.55 on a bloated valuation, insider selling, dilution and analysts bashing the company for a lack of a plan to monetize its mobile business. In Facebook’s defense, just over a year later, the stock has hit all-time highs.
No date has been disclosed for the Twitter debut, but most analysts are under the assumption that it will be by the end of the year with an initial price around $29 per share. People close to the source, who wish not to be identified, according to the NY Times, say that the IPO will be priced on November 14 with trading starting the next day.
Facebook’s initial prospectus showed 845 million active monthly users. The recent SEC filing from Twitter shows that, quarter-over-quarter, monthly active users at Twitter rose to more than 230 million from 215 million for the three months ended September 30.
Regulatory filings also showed that Twitter expanded revenue and net loss during the third quarter. Revenue increased to $168.6 million, versus only $82.3 million in the same quarter last year. While many might extrapolate doubling sales as a great thing for the company, it’s hard to overlook that net losses grew even more, proportionately speaking, increasing from $21.6 million to $64.6 million, as the company spent more on stock-based compensation and research and development.
Advertising revenue jumped 39 percent from the June period to $153.4 million.
Twitter is expected to hit the road this month peddling its offering to try and get institutional investors to sink cash into their business model, which now includes partnerships with Comcast ($CMSCA) as the future of a combination of social media and mobile content.
The question there is: Will Wall Street overlook a tripling net loss to get a piece of the social media pie? The answer is: Yes. In fact, to many, the losses will mean that Twitter is working to reach the type of scale that institutional investors will want to see.
Wall Street is – I dare say – blind to running IPOs anymore. It seems safe to say that if soup and sandwich restaurant operator Potbelly (PBPB) gapped up more than 100 percent in its debut on the Nasdaq, that Twitter’s crazily-anticipated IPO may gap heavily beyond its IPO price, so average retail investors shouldn’t hold their breath to ever see $29 or $30 per share. Potbelly priced its offering at $14 per share and gapped to about $30 per share at its opening of trading, representing one of the best performing IPOs this year. Of course, casual retail investors never saw that opportunity at $14 and now the stock is down, closing Tuesday at $25.68 after hitting as low as $23.78 as initial investors apparently booked profits.
Bottom line is that this doesn’t appear to be another Facebook as Twitter seems actively trying to avert falling into that social media and initial investing chasm that Facebook did as the markets are chomping at the bit for Twitter to go public. The original investors are going to (rightfully so) make a killing on their investment and the institutions behind it are going to push like crazy to get their following investment community to buy into it. To the average person sitting behind a keyboard on IPO day: Good luck because most of these types of deals generally require a really quick finger to bank a small profit if/when the stock price gaps way ahead at the start of trading as it seems likely TWTR will do. Taking a “glass is half full” attitude, maybe the price will gap and continue to run, at least providing an opportunity for casual traders.