By Jeremy C. Owens, Peter Delevett and Heather Somerville
San Jose Mercury News
Twitter Inc.’s initial public offering rose in price throughout the company’s march toward Wall Street, but investors were prepared to pay much more Thursday.
The social network reached a new stage in its evolution Wednesday evening by selling at least 70 million shares at $26 apiece, raking in $1.8 billion at a valuation of $14.2 billion, making it the second-largest tech IPO of all time, behind only rival Facebook Inc.
Investors seemed to think Twitter could have priced shares even higher, however, sending that price soaring more than 70 percent to $45.10 in the initial trade Thursday on the New York Stock Exchange.
The price moved higher than $50 briefly in the first 10 minutes of trading, hitting a high of $50.09, and shares sold for no lower than $44 before closing at $44.90, 72.7 percent higher than the IPO price.
At its closing price, Twitter had a market capitalization — calculated as multiplying the share price by the number of outstanding shares — of $24.5 billion.
Twitter initially sought $17 to $20 for its initial batch of shares, but after CEO Dick Costolo and other executives met with potential investors nationwide to gauge demand for a piece of Twitter, the price began to rise.
On Monday morning, Twitter increased the possible range for its IPO price to $23 to $25, then decided to charge investors $1 more than the top of that range. When the price nearly doubled Thursday on the open markets, some experts had flashbacks to the dot-com bubble.
“What’s going on is hysteria for the moment,” said Larry Chiagouris, a professor of marketing at Pace University’s Lubin School of Business in New York. “Until you hear evidence that a Fortune 500 company has put a quarter of its advertising budget into social media, it’s hard to conclude these companies are very viable.”
A fellow academic disagrees, however. Robert Hendershott, a Santa Clara University finance professor and private equity expert, said that Facebook Inc.’s early faceplant could validate Twitter’s IPO performance. Facebook, Twitter’s Menlo Park, Calif., rival, rapidly increased its price tag leading up to its May 2012 IPO, then traded lower than that price for more than a year.
“Given how Facebook was beaten up after its IPO, the story that investors are just euphoric and willing to pay any price for social-media companies just doesn’t fly,” he said Thursday. “That was a truism in the late ’90s, when anything that had a dot-com in it would soar, but today you really have to execute, and if people have doubts — as we saw with Facebook or Zynga or Groupon — you get crushed.
“You have to execute, and that is different from what we saw in the late ’90s, and that’s what makes Twitter’s price today a lot more credible, because you know investors are looking at the real potential and not just some pipe dream,” he added.
In a nod to the importance of its users, Twitter allowed three of its popular tweeters to ring the opening bell Thursday at the NYSE, an honor usually reserved for company executives. Sir Patrick Stewart, an actor known for his roles on Star Trek: The Next Generation and the X Men movies; Vivienne Harr, a 9-year-old girl from Fairfax, Calif., known for spending a year raising funds with a lemonade stand to fight child slavery; and a representative of the Boston Police Department, which broadcast its chase of suspects in the Boston Marathon bombing, were chosen to open Twitter’s first trading session.
Demand for Twitter stock didn’t seem to be damaged by the price increases leading up to its Wall Street debut: Reuters reported Thursday morning that the IPO was 30 times oversubscribed, meaning demand was 30 times greater than supply, with 10 institutional investors receiving half the shares that were doled out.