Image: Steve Garfield
Twitter is gearing up to run on the New York Stock Exchange in just a matter of days, but could getting your hands on a share or ten be more of a risk than a canny investment if previous examples are anything to go by?
Twitter revealed plans in late October to raise up to $1.4 billion through an IPO (Initial Public Offering) of around 70 million of its shares. It also revealed that the initial price range will be somewhere between $17 to $20 per share. When Facebook did the same thing a few years ago, it originally priced the shares at $38 per share. This then rocketed to $45 per share in a matter of hours, only to later slump, a state of affairs which some analysts attributed to the shares’ initial overpricing. This has left investors with worries of whether the same thing will happen to Twitter when the trading on its shares starts in early November.
There’s no way of knowing exactly if this will happen, and, as a consequence, whether investing in the future of Twitter could be a bad idea financially. One reassuring fact, however, is that the major shareholders, including co-founder Evan Williams, are holding on to their shares instead of liquidating them. This shows a great deal of faith in the shares from the people who, in financial terms, stand to lose a lot if the whole endeavor goes awry. According to Bloomberg, Robert Peck, an analyst with SunTrust Robinson Humphrey in New York, has said, “You don’t see a big owner coming out and selling everything,” adding that it “shows conviction about the long-term prospects of the company.”
Another thing that might help stop the nerves of investors and current owners alike is the fact that a recent test run of Twitter’s share sale at the New York Stock Exchange was said to be successful. The idea behind the test run was to give traders an opportunity to clear up any potential glitches in the system that might cause problems. This happened when Facebook’s shares entered the NASDAQ and investors were left unsure for hours, sometimes days, of whether their transactions had gone through.
Despite its 200 million users, Twitter made a loss of $69 million on revenues of $254 million in the first six months of 2013. Will this move turn around its fortunes? The signs look promising, but it remains to be seen.