Twitter shares soar 73% in IPO
NEW YORK — In a mere instant — or about the time it takes to send a 140-character message — Twitter became one of the Internet’s most valuable properties, capping a dizzying seven-year rise from scrappy start-up to a major publicly traded company.
Twitter Inc. surged 73% to $45.10 the moment its stock began trading Thursday on the New York Stock Exchange, even as other technology stocks and the overall market slumped. With that opening trade, the online short-messaging service was valued at $25 billion.
That’s a larger valuation than more than half the companies in the Standard & Poor’s 500, higher even than more established tech moneymakers such as Netflix Inc. and on par with LinkedIn Corp., showing the voracious appetite among investors for hot Internet stocks with growth prospects.
But while Twitter will be remembered as a highly successful initial public stock offering that avoided the fate of its social media rival Facebook, most investors who bought Thursday actually suffered a loss.
Institutional investors and wealthy individuals who were lucky enough to snag pre-IPO shares at $26 walked away with a hefty profit when Twitter closed at $44.90 after peaking slightly above $50.
It was a different story for many regular investors who piled in Thursday. Those who bought at almost any point lost money when the shares slipped late in the day.
Some analysts warned that the initial excitement may wane quickly. Twitter has accumulated hundreds of millions of dollars in losses in the last three years and shows no signs of turning a profit any time soon. And, in six months, company executives and directors could flood the market with shares when the lockup agreements, or restrictions on selling the stock, expire, driving down the stock price.
“I think this is more a function of supply and demand than it is of anything fundamental,” said Michael Pachter, an analyst with Wedbush Securities. “People really want to invest in this company because they really like what they do. And right now earnings and profits and revenue growth and user growth are not as important as: People want to own Twitter.”
Twitter fever gripped Wall Street much of the day.
Cheers erupted on the trading floor as thousands of miles away in the company’s San Francisco headquarters hundreds of staffers wearing company T-shirts blasted a stream of celebratory tweets, Vine videos and selfies. Some had instantly become millionaires, at least on paper.
Chief Executive Dick Costolo was on hand for the festivities at the NYSE along with Chief Financial Officer Mike Gupta and founders Evan Williams, Biz Stone and Jack Dorsey.
Dorsey tweeted “just setting up our $twtr” and posted a six-second Vine video capturing the scene on the trading floor, echoing his first-ever tweet: “just setting up my twttr.”
He sent that first message in March 2006, launching a cultural phenomenon — a worldwide messaging service used to keep up with celebrities and world leaders, get eyewitness reports of a plane crash on the Hudson River or organize protests on Wall Street and revolutions in the Middle East.
As was fitting, it was not Twitter executives, but Twitter users who rang the opening bell: actor Patrick Stewart; 9-year-old Vivienne Harr, who sold lemonade to raise awareness about child slavery; and Boston Police Department’s Cheryl Fiandaca.
Trading went off without a hitch, as Twitter pulled off what was being called the “anti-Facebook IPO,” carefully orchestrating an orderly debut that avoided the technical glitches and runaway hype that marred Facebook’s first day of trading 18 months earlier on the Nasdaq Stock Market.
Anthony Noto of Twitter’s lead underwriter, Goldman Sachs, captured the prevailing sentiment on the trading floor when he tweeted moments after Twitter opened: “Phew!”
“Perfect. Couldn’t be better,” said David Ethridge, who heads the NYSE’s IPO business that successfully beat out rival Nasdaq to list Twitter.
Even though Twitter showed restraint in pricing the IPO, the shares opened so high that one analyst immediately downgraded the stock. Brian Wieser, an analyst at Pivotal Research Group, was the first to slap a sell rating on the stock. He has a price target of $30 on the stock.
“It’s a great company, I think they’ve got a wonderful future ahead of them, but at $45 it’s too expensive,” Wieser said.
Investors are betting on growth sometime down the line — not on current results.
Twitter may not turn a profit until 2015. But analysts think Twitter could generate revenue of $1.9 billion in 2015. That’s three times what the company is expected to make this year.
Twitter used to be known more for its quirky corporate culture, executive infighting and frequent service outages than as a bona fide business. But over time the service grew in popularity around the world, attracting such people as the Pope and President Obama.
Under CEO Costolo, an entrepreneur and former Google executive, the company has gained traction with advertisers. Costolo flew back to San Francisco to address staffers at the company’s traditional “tea time” meeting late Thursday afternoon.
Not everyone is a fan in San Francisco, where Twitter is based.
United Public Workers for Action, a labor and community group, rung in the IPO with a protest outside Twitter headquarters on a blighted stretch of Market Street.
Some San Francisco residents are angry about skyrocketing rents, housing costs and evictions caused by the flood of wealthy young technology workers, not to mention the generous tax breaks the city handed Twitter.
Protesters wrapped themselves in bandages and lay across the entry to Twitter’s offices next to a coffin with “Affordable Housing” written on it. One protester read a list of names of people who had been evicted recently while others chanted, “Whose city? Our city!”
They are not the only ones who fear that the vast wealth being created by the Twitter IPO may not spill over into the community.
“As much as I’d like us to celebrate all that Twitter has built, I have to ask what Twitter will do to give back to San Francisco,” San Francisco tech entrepreneur Chris Tacy said.
Times staff writer Chris O’Brien in San Francisco contributed to this report.
Guynn reported from San Francisco, Tangel reported from New York and Chang reported from Los Angeles.
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