Everything You Need to Know About the Twitter IPO

Jacob Harper |

For the first time ever, on Nov. 6 Twitter will become available for public investment. Debuting under the ticker TWTR, the red-hot social media company will begin trading shares on the New York Stock Exchange at between $23 and $25 a share. This is an uptick from a previous valuation of $17 to $20 a share, and a response to the investment sphere’s voracious appetite for the company.

As billions change hands on Thursday, with investors looking to get into Twitter ($TWTR) on the ground floor, there’s a lot to parse before the mayhem starts. After all, not since Facebook Inc. (FB) has an initial public offering (IPO) engendered such interest. A combination of household-name status, ubiquitous usage – not to mention the “wow” factor associated with tech stocks – has spurred neophyte investors into seeking out their piece of the microblogging service.

Amateur investors understandably have a lot of questions about investing in Twitter. Here’s what those looking to get into the company should know:

How Does an Investor Buy Shares of Twitter?

While Twitter has raised the price of the offering in anticipation of “retail interest” (that is, average investors) the majority of shares are first going to be available to insiders. That is, those likely to buy into the company and hold onto their stock, and not dump it if and when the stock pops on the first day.

If the curious investor wants to get in on Twitter, at this stage it will be difficult, although not impossible. Since IPOs are underwritten by investment banks – in Twitter’s case, Goldman Sachs Group (GS) with assistance from Morgan Stanley (MS) – clients of those companies will get first crack.

What Can Investors Expect on the First Day of Trading?

Until the company officially goes public, all speculation is academic. The IPO is the true test of what the market really thinks a company is worth, finally proving whether all the prior research and analysis was right or waaaay wrong.

IPO days can be incredibly volatile, and can swing wildly either way. For instance on its IPO Facebook initially went up before tanking, eventually losing half its value. Twitter has taken great care to not repeat that disaster.

On the other hand, IPOs can prove a stock is worth far more than its analysts had surmised, and the stock can jump on the first day, providing massive gains for those in on the ground floor. On Nov. 1 one of the most recent IPOs, that of specialty retailer The Container Store ($TCS) saw its shares double in value on the first day.

What if a Non-Insider Wants to Invest?

Since the Twitter IPO has attracted such ungodly amounts of attention, it’s not very likely an average investor can get in on the IPO price, as most available shares will be offered first to heavy players. While it will be harder for average investors to make a quick one-day profit, it’s not impossible an average investor can buy in early.

Most regular investors will get their chance to buy in the day after the IPO. But whether buying in on IPO or the day after, to trade Interested parties need to set up an account at a brokerage. There are several online ones, like Ameritrade and eTrade that are designed for neophyte investors. Keep in mind it can take time for your account to be approved, sometimes up to 10 business days. But once it is, you can join the speculative Twitter frenzy with the pros.

What Should Investors Know about the Twitter IPO?

When looking at Twitter’s debut on the market, investors should keep two things in mind: the profile of the company itself, and the economic climate in which Twitter is having their IPO.

Twitter's Company Profile

Concerning Twitter’s profile: we don’t mean their Twitter page. Rather, we mean what the company’s fundamentals are going into its public offering.

Twitter is expected to be valued at roughly $13.6 billion. The company sports 232 million “active” users, an increase of 39 percent from the previous year. The company rang in $317 million in sales in 2012, mostly via advertising inserts. The company also reports 71 percent of its revenue from mobile, a positive sign in an age where an increasing number of users access the internet via their phones.

Francis Gaskins, expert IPO analyst and Director of Research for Equities.com, called Twitter a buy “at IPO or perhaps after market,” calling projections for a 31-percent increase in revenue by 2015 to be “conservative.” He was further impressed with their three main revenue drivers (promoted tweets, accounts and trends) and eight new revenue drivers, notably Vine and Big Data.

Gaskins also pointed out that Facebook’s over-popularity was a detriment: “All the taxicab drivers were recommending FB, that’s a bad sign for an IPO because the company has no more tricks to implement and show investors. TWTR is not fully understood by the average investor, yet.  That’s good for (them.)”

However, though Twitter is growing fast and is developing several revenue streams, and racking up hundreds of millions in revenue, it has never been profitable. The company actually lost $79.4 million last year, and will probably lose even more this year.

Of course, hot tech companies usually get a fair amount of leeway concerning profits, as they’re usually assumed to be capable of turning a massive profit eventually. And with Twitter’s growing user base, and well-established knack for monetization, eventual profitability doesn’t seem out of the question.

The Market's Opinion of Twitter

Aside from Twitter’s economic profile, investors should know this is the most popular time to IPO since 2007, or at the brink of the Great Recession. An optimist would say this is the result of an economy in full recovery.  A pessimist says “another bubble.” The truth, as with most things, is probably somewhere in between.  

11 companies alone are IPOing the week Twitter does. Of course, Twitter’s is far and away the most prominent, but there is no question this is an unusually fertile time period for public offerings. Gaskins does warn however that “this IPO season is hot, a lot of IPOs go up, but it is still selective and is not a blank check to get IPO money.” 

Interest in Twitter’s IPO, as noted earlier, has been strong. In fact, it is so strong Twitter is “closing the books” at the end of the day on Nov. 5, a day earlier than initially planned.

Let the Drama Commence

This IPO stands a good chance of being a dramatic one. “The buzz on TWTR is building rapidly, perhaps coming to a boil on Thursday,” Gaskins said. “There’s a good chance it will trade… in the $35 to $40 per share area.”

Whether that happens or not will become apparent when the NYSE rings their opening bell on November 6 and trading on one of the hottest tech properties in the world officially commences.

(image courtesy of Flickr).

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
FB Facebook Inc. 119.68 0.77 0.65 17,464,736
MS Morgan Stanley 43.73 0.15 0.34 12,115,063
TWTR Twitter Inc. 19.65 0.01 0.05 15,956,083
GS The Goldman Sachs Group Inc. 241.85 0.40 0.17 5,456,047
TCS The Container Store Group Inc. 8.07 0.56 7.46 1,426,399
NASRF Nanostart AG n/a n/a n/a 0

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