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After Twitter's hot IPO, now comes the hard part

Monday - 11/11/2013, 6:30pm  ET

CORRECTS NAMES: Bureau Chief of Public Information for the Boston Police Department Cheryl Fiandaca, left, Vivienne Harr, a girl who sells lemonade in the name of ending slavery across the globe, NYSE Executive Vice President Scott Cutler, and actor Sir Patrick Stewart, right, applaud the New York Stock Exchange opening bell is rung for the Twitter IPO, Thursday, Nov. 7, 2013. If Twitter's bankers and executives were hoping for a surge on the day of the stock's public debut, they got it. The stock opened at $45.10 a share on its first day of trading, 73 percent above its initial offering price. (AP Photo/Ben Hider, NYSE)

BARBARA ORTUTAY
AP Technology Writer

NEW YORK (AP) -- Twitter's stock took to its wings in its public debut, closing up more than 70 percent. The day flew by with nary a hitch and gave birth to a new batch of Silicon Valley millionaires -- even a few billionaires.

Now comes the hard part. With Twitter's value skyrocketing in just a day, the 7-year-old company that's never turned a profit and has just a fraction of Facebook's user base must prove to investors that it's worth the money. Twitter stock ended Thursday's trading at $44.90, giving the company a market value of $31 billion. That's $13 billion more than on Wednesday night, when the company set its IPO price at $26.

"Ultimately what you want is a nice pop," said Roger Entner of Recon Analytics. "Everyone walks away with smiles from ear to ear."

Twitter, he added, "now just has to deliver on all this."

By the closing bell, the social network that reinvented global communication in 140-character bursts was worth nearly as much as Yahoo Inc., an Internet icon from another era, and only slightly less than Kraft Foods, the grocery conglomerate founded more than a century ago.

The stock's sizzling performance seemed to affirm the bright prospects for Internet companies, especially those focused on mobile users. And it could invite more entrepreneurs to consider IPOs, which lost their luster after Facebook's 2012 public debut was marred by technical glitches. In Silicon Valley, Twitter's IPO produced millionaires and billionaires, some of whom are sure to fund a new generation of startups.

Twitter worked hard to temper expectations ahead of the IPO. All that was swiftly forgotten with the stock's opening surge.

But the excitement may not last. The company isn't expected to turn a profit until 2015. That could be a long wait for investors, especially if Twitter's revenue growth slows. There are already signs that its user growth is decelerating.

By Thursday's close, Twitter was valued at close to 48 times its projected 2013 revenue of $650 million. In comparison, Facebook trades at about 16 times its projected 2013 revenue, according to analyst forecasts from FactSet.

Google Inc., meanwhile, is trading at about 7 times its net revenue, a figure Wall Street follows that excludes ad commissions.

Twitter's stock looks so expensive to Brian Wieser of Pivotal Research that the analyst downgraded his rating on the stock to "sell" from "buy" on Thursday morning. While his overall view of the company's prospects remained positive, Wieser thinks the high $20s or low $30s is a more reasonable range.

Twitter, Wieser added, faces a slew of risks in the coming months, including the possibility that it will need more money beyond its IPO proceeds to fund its business.

Twitter raised $1.8 billion Wednesday night when it sold 70 million shares to select investors for $26 each. Had it priced the stock at $30, for instance, the company would have taken away $2.1 billion. At $35, it would have reaped nearly $2.5 billion.

But Twitter was purposely conservative in its approach. The most anticipated initial public offering of the year was carefully orchestrated to avoid the glitches and letdown that surrounded Facebook's first appearance on the Nasdaq 18 months ago.

Trading on the New York Stock Exchange under the symbol "TWTR," shares opened at $45.10, 73 percent above their initial offering price. In the first few hours, the stock jumped as high as $50.09. Most of those gains held throughout the day, with Twitter closing at $44.90, despite a broader market decline.

The narrow price range indicated that people felt it was "pretty fairly priced," said JJ Kinahan, chief strategist at TD Ameritrade.

Named after the sound of a chirping bird, Twitter's origins date back to 2005, when creators Noah Glass and Evan Williams were trying to get people to sign up for Odeo, a podcasting service they created. Odeo didn't make it.

By early 2006, Glass and fellow Odeo programmer Jack Dorsey began work on a new project: teaming with co-worker Christopher "Biz" Stone on a way to corral text messages typically sent over a phone.

It was Glass who came up with the original name Twttr. The two vowels were added later. The first tweets were sent on March 21, 2006.

By 2007, Twitter was incorporated with Dorsey as the original CEO and Williams as chairman. Dorsey and Williams would eventually swap roles. Both remain major shareholders, though neither runs the company. Glass, meanwhile, was effectively erased from Twitter's history, writes New York Times reporter Nick Bilton in "Hatching Twitter: A true story of money, power, friendship, and betrayal."

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