November 7, 2013
Big Trading Gets Underway As Twitter Opens Up
Enid Burns for redOrbit.com - Your Universe Online
British actor Patrick Stewart rang the opening bell on Wall Street this morning. Vivienne Har, a 9-year-old attributed with starting a charity to end childhood slavery using the microblogging site Twitter as a platform, accompanied Stewart. The occasion signaled a flurry of trades including the new stock from Twitter (TWTR.N). The share price of the IPO was set at $26, which quickly jumped once trading got underway.
Thursday morning Twitter's stock quickly rose from its initial $26 per share to $45.10 per share by mid-day, a 73 percent increase, Mashable reports.
Reuters subsequently reported that trading climbed past the 73 percent mark and rocketed on toward 92 percent.
While the initial public offering was priced at $26 per share, which was set on Wednesday, the morning started trading with an immediate $45.10 a share. The demand is also exceeding the available number of shares. Reuters notes that "investors asking for 30 times the number of shares on offer as they bet on potential growth at the money-losing social media company."
Share price at opening was valued at about 22 times the forecast for 2014 sales, according to Reuters. Competing social media companies such as Facebook and LinkedIn did not enjoy such valuations for their IPOs. Facebook's trading volumes also caused some damaging glitches on the New York Stock Exchange. Wall Street has taken measures to ensure that the same problems will not occur as trading heats up on the day Twitter debuts on the exchange.
To test the system, NYSE Euronext staged a test for the initial public offering over a weekend two weeks ago, a first of its kind exercise, USA Today reports.
Following the glitches experienced during Facebook's IPO, NASDAQ incurred charges of securities violations by the Securities and Exchange Commission amounting to a record $10 million.
Testing of the system is one factor that NASDAQ believes will keep it out of trouble Thursday. The market also expects to see lower volumes than comparable Facebook -- though early trading may indicate otherwise.
"Any reprise of Facebook's snags also seems unlikely because Twitter is expected to raise roughly one-eighth the $16 billion raised by Facebook," USA Today quoted Kathleen Smith, principal of IPO fund manager Renaissance Capital.
The fact Twitter is 30 times oversubscribed could mean that Twitter is getting more trading attention than expected, and volumes could rival that of the Facebook IPO.
"Facebook was so overhyped people felt like they couldn't miss out," Reuters quoted Kenneth Polcari, a senior floor official at O'Neil Securities Inc. "Twitter isn't like that, though you can feel the excitement."
The demand for Twitter stock on its first day of trading is understandable; however some traders should exercise caution. "The downside of the huge demand is the belief that Twitter may have left money on the table. In other words, the company could have priced its IPO higher or offered more shares to raise more money," Mashable's Todd Wasserman writes.
“From here on out (Twitter) has an uphill battle,” said Lon Safko, Social media entrepreneur/consultant. “ (It) HAS to deliver revenue. And, we’ve seen with so many other social networks, people just don’t want to either pay for the service or are intolerant to advertising.
“They will have to do Contextual in Tweet Advertising! They have to,” Safko told redOrbit. “There are only two models that work and not well; the ‘Freemium’ model where you are bombarded with ads, but have the option of buying your way out of them with a monthly subscription or just hammer them with ads the way Google does. The freemium model is much the same as we all were sold on cable television. Either the commercials are embedded in the programming or you pay for the content each month and there is no commercial. However, we all have seen how that worked out for us. We pay each month AND get the commercials.”