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Tweet This: Twitter Soars 73% In Stock Market Debut

5:15 PM, Nov 7, 2013   |    comments
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Alistair Barr, USA TODAY

SAN FRANCISCO - Twitter shares soared Thursday as investors scrambled to get a piece of what they hope will be the next blockbuster social-media company after Facebook.

Twitter and its bankers, led by Goldman Sachs' Anthony Noto, priced its IPO at $26 a share late Wednesday.

The shares opened at $45.10 on the New York Stock Exchange, under ticker TWTR. The stock climbed as high as $50.09 before closing at $44.90, up 73%. That values the company at more than $31 billion, which compares with Facebook's market capitalization of $120 billion and LinkedIn's $26 billion.

The gains highlight how euphoria is returning to the tech sector, fueled by optimism about the potential for social media to grab a big share of the booming online advertising business. Facebook and LinkedIn shares are up at least 80% so far in 2013.

"We're entering a pretty extended period of optimism," said Rick Summer, an equity analyst at Morningstar. "There is a lot of downside risk at these levels," he added, referring to Twitter's opening price.

Summer has a $26 fair value for the microblogging service, which assumes the company can attract a billion users in the next 10 years, up from about 230 million now, while improving its monetization of those users by 20% a year.

"Is it possible this won't materialize? Absolutely," Summer added. "Our downside fair value target is $15."

Brian Wieser, an analyst at Pivotal Research, downgraded Twitter shares to sell as they surged past his $30 price target.

 

Twitter CEO Dick Costolo told CNBC that the company is focused on making the service easier to use and highlighted its potential for big profit margins in the future.

"There is nothing structural about our business that prevents us from achieving the kinds of margins that are in our peer group," Costolo said during an interview at the NYSE.

Brian Nowak, an analyst at Susquehanna Financial Group, expects Twitter's EBITDA (earnings before interest, tax, depreciation and amortization) margin to reach 44% in 2017. That's still below Facebook's profit margins, which were 57% in 2012, the analyst noted.

Twitter co-founders Evan Williams, Jack Dorsey and Biz Stone were also present at the NYSE; however the company let Twitter users, including actor Patrick Stewart, ring the opening bell.

The Twitter IPO was heavily oversubscribed, which forced some investors to wait until the stock started trading today to buy it. That helped fuel big gains.

A successful IPO is supposed to climb on its first day. So far this year, the average one-day pop for U.S. listed technology or Internet IPOs is 35%, according to Dealogic.

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