(Adds further reaction, context)
By Olivia Oran and Gerry Shih
NEW YORK/SAN FRANCISCO Nov 7 Twitter Inc
shares jumped 73 percent in a frenzied trading debut
that drove the seven-year-old company's market value to around
$25 billion and evoked the heady days of the dot-com bubble.
The strong performance on Thursday is encouraging for the
venture capitalists who have backed other consumer Web startups,
such as Square or Pinterest, though it sounded alarm bells for
some investors who cautioned that the froth was unwarranted.
"@twitter opening at $45/share? Almost 50x revenues! We are
officially in another tech bubble," tweeted financier and
investment advisor Steve Rattner.
The stock closed its first day of trade on the New York
Stock Exchange at $44.90 a share after hitting a session-high of
$50, nearly double the initial public offering price of $26 set
late on Wednesday.
Twitter could raise $2.1 billion if an underwriters'
over-allotment is exercised, as expected, making it the second
largest Internet offering in the United States behind Facebook
Inc's $16 billion IPO last year and ahead of Google Inc's
2004 IPO, according to Thomson Reuters data.
Fans believe that Twitter, which has 230 million users, has
established itself as an indispensable Internet utility
alongside Google and Facebook, and that it has only scratched
the surface of its potential as a global advertising medium.
"When people use Twitter they are following certain people,
they're searching for specific information," said Mark Mahaney,
an analyst at RBC Capital Markets. "There are powerful marketing
signals that are almost Google-esque, something that Facebook
doesn't really have."
The IPO was shadowed for months by Facebook's troubled 2012
debut, in which the shares quickly fell below their offering
price amid trading glitches and subjected the company and its
lead banker, Morgan Stanley, to accusations that they had
been greedy in pricing the deal.
Twitter's opening appeared to go off without a hitch,
prompting Anthony Noto, the Goldman Sachs banker who led
the IPO, to write a simple Tweet: "Phew!"
Still, Twitter may find itself subject to the opposite
criticism, that it had priced the shares too low and left more
than a billion dollars on the table.
"In my mind they certainly could've raised the price on this
thing and gone into the low 30s," said Ken Polcari, director of
the NYSE floor division at O'Neil Securities. "From an outsider
looking in I would say they were overly cautious because they
didn't want a disaster on their hands ... I'm sure the company
didn't want a Facebook debacle, I get that, but I think they
were overly cautious and it cost them some money."
The 70 million IPO shares represent about 13 percent of the
company's common shares. Twitter was the most actively traded
stock on Thursday, with around 117 million shares changing
Heavy demand for the IPO was apparent before the final
pricing. Twitter was able to price the IPO above an already
raised indicative range, and the deal still attracted investor
subscriptions that totaled 30 times the number of shares on
offer, according to market sources.
IN SAN FRANCISCO
At Twitter's headquarters in San Francisco, offices opened
early and hundreds of employees flocked to the 9th floor
cafeteria to watch the festivities on TV while eating "cronuts,"
a croissant-donut hybrid, made by Twitter's resident chef, Lance
The IPO is the latest milestone for a service that was born
out of a nearly-defunct startup in 2006 and was derided by many
in its early years as a silly fad dominated by people talking
about what they had for breakfast.
But Twitter quickly began to penetrate popular culture in
unexpected ways, with its open design and broadcasting format
attracting celebrities, athletes, politicians and anybody who
wanted to share short, punchy thoughts with a digital audience.
Its business potential developed more slowly, and the
company appeared to be floundering as recently as three years
ago, when it was riven by management turmoil and frequently
crippled by service outages.
Under Dick Costolo, who took over as CEO in October 2010,
Twitter has rapidly ramped up its money-making engine by selling
"promoted tweets," messages from marketers that are distributed
to a wide-ranging but targeted group of users. In the third
quarter, Twitter had $168 million in revenue, it said, more than
double from a year prior.
The NYSE, which snatched the listing away from its
tech-focused rival, Nasdaq, marked Twitter's debut with
an enormous banner with the company's blue bird logo along its
Broad Street facade.
British actor Patrick Stewart, of Star Trek fame, rang the
opening bell at the Big Board together with nine-year-old
Vivienne Harr, who started a charity to end childhood slavery
using the microblogging site.
"I guess I represent the poster boy for Twitter," Stewart
said, adding that he had only been tweeting for about a year.
Costolo and Twitter's three co-founders - Evan Williams, Biz
Stone and Jack Dorsey - appeared on the packed exchange floor to
witness the beginning of trade.
At current valuations, the stakes owned by Williams and
Dorsey would be worth around $2.7 billion and $1.1 billion,
respectively. Costolo, who invested $25,000 in the fledgling
company in 2007, holds a 1.4 percent stake worth about $360
Investor enthusiasm for the microblogging company defied
traditional valuation analyses. The shares traded at about 22
times forecast 2014 sales, nearly double the multiple at social
media rivals Facebook and LinkedIn Corp, even though
Twitter is far from turning a profit and posted a loss of almost
$70 million for its most recent quarter.
The hefty valuations were cause for celebration for Twitter
insiders and venture capital backers, such as Union Square
Ventures, Spark Capital and Benchmark Capital. But some analysts
warned that a correction may be in store.
"With a price that pushes into the high 30s and beyond,
Twitter is simply too expensive," Pivotal Research's Brian
Wieser wrote in a note cutting his rating on the stock to "sell"
"One way to justify a $45 price in our model would involve
presuming that Twitter could generate more than $6bn in annual
revenue by 2018. However, we think that would seem overly
Fund managers who got small allocations at the IPO were
hopeful the stock would trade down after Thursday's pop.
"We have a target of $40 and we won't buy more as long as it
is trading above that," said Mark Hawtin, portfolio manager of
the GAM Star Technology Strategy.
Jerry Jordan, manager of the $48.6 million Jordan
Opportunity Fund, who got a small allocation, said he
would buy more of Twitter if it trades down around $30-$35.
"A lot of these sexy IPOs have a big pop on the first day
and then they grind sideways," Jordan said.
As Twitter's stock soared after the opening, the company's
market value, including restricted share units and other
securities that could be exercised in the coming months, was
over $28 billion.
The company said in its investor prospectus that more than
three-quarters of its users are outside the United States.
Despite its early reputation as a hangout for Silicon Valley
early adopters and tech geeks, some of its most active markets
now include Japan, Indonesia, Brazil and Saudi Arabia.
The fast-moving, mobile service was credited with fueling
popular protests that upended the Arab world in 2011. It served
as a lifeline to the outside world for its users during natural
disasters like Hurricane Sandy, and also instantly relayed news
such as early rumblings of the 2011 U.S. raid on Osama bin
Laden's compound in Pakistan.
"Twitter has, when coupled with the increasing distribution
of smart phones and reach of the Internet, an impact on global
connectivity and transparency," said P.J. Crowley, the former
U.S. State Department spokesman. "It has definitely contributed
to the acceleration of the news process and helped to expand the
availability of information sources to a wide range of people."
The three most-followed accounts belong to a trio of pop
stars: Katy Perry, Justin Bieber and Lady Gaga. U.S. President
Barack Obama comes in fourth.
The 140-character messages have spawned an Internet culture
of its own. The "hashtag," a pound symbol devised by early
Twitter users to denote the topic of a conversation, has became
ubiquitous, with the word even becoming an ironic expression
parodied by the likes of "Saturday Night Live."
Twitter's successful debut is likely to stoke interest in
other up-and-coming consumer Internet companies such as ride
service Uber, scrapbooking site Pinterest, accommodation service
Airbnb and the payment start-up Square, all of which boast
private-market valuations well north of a billion dollars and
could go public in the coming years.
Kevin Hartz, CEO of Eventbrite and an early investor in
Pinterest and Airbnb, said the IPO floodgates might open now.
"The pendulum is swinging back in a surprising way," Hartz
said. "There's a pent-up supply of a lot of quality companies."
Still, two early social media success stories, Groupon Inc
and Zynga Inc, have suffered major reversals
since going public. Groupon, despite big gains in its shares
this year, still trades at less than half its 2011 IPO price.
Zynga is worth about a third of its 2012 IPO price.
And first-generation social media firms such as MySpace have
all but vanished as fickle users moved on to the next big thing.
(Additional reporting by Jessica Toonkel and Christian Plumb in
New York, Bill Rigby in Seattle and Sruthi Ramakrishnan in
Bangalore; Editing by Jonathan Weber, Tiffany Wu and Tim Dobbyn)