On November 7th 2013 Twitter IPO’d on the NYSE.
IPO stands for initial public offering and it is when a company issues share capital in order to raise finances.
When the NYSE opened on Thursday Twitter had an absolute stormer. It was sold to the markets at $26 a share and immediately opened up 70%, reaching highs of $50 (90%) before settling at $44.90 (73%).
The graph above shows how Twitter has performed compared to the other top ten internet IPOs.
So why the dramatic rise?
The rise has come as a surprise to some investors, who can’t believe that a stock, such as Twitter, which generates no profit at the moment could experience such success on the stock market.
- Momentum: One reason for the rise is a market momentum, it has been argued that traders have been investing in Twitter, not on fundamentals, but simply on the fact that the stock is having a good bull run and they want to benefit from it – as discussed in this video.
- Potential: Twitter has a userbase of 500 million, and growing. Not only this but Twitter was also ranked in the top ten visited internet pages. This offers advertisers and other firms a big opportunity to make some money.
Will Twitter be a success?
The only answer I can give to this is my own opinion. I think it’s going to be difficult for Twitter to make money; the website is designed to be a ‘fleeting’ website – one that involves posting a quick 140character phrase and then moving on to something else and as a result of the nature of this I find it difficult to understand how advertisers will make much money from the fleeting customer. Furthermore when was the last time you clicked on a advertisement on Twitter? I know there is a lot of indirect advertisement going on that we are unaware of but as a consumer I don’t see how they’re going to generate much revenue in the long-run.
We can, however, draw on the success of Google, who were a similar ‘fleeting’ business and have their revenues focused on advertisement. They have become one of the biggest companies in the world, despite having a much more modest IPO compared to Twitter, and they are unlikely to be taken off their dominant throne any time soon.
There’s a lot of news flying around on the IPO and I suggest that if you’re interested you check out the MarketWatch website, who are running a live stream on information related to the Twitter IPO.
Would be great to hear your opinions, leave a comment below, or Tweet me @Breadeconomics.