When Twitter debuts its initial public offering (IPO) on the New York Stock Exchange on Thursday, it will be the most hotly anticipated IPO since fellow social media giant Facebook went public in May 2012.
An initial public offering is a type of public offering where shares of stock in a company are sold to the general public, on a securities exchange, for the first time. It is an opportunity for early investors and those holding significant equity in the company to recoup their investment or exchange their holdings for profit.
Consumer demand for the stock has been so hot that on Monday, Twitter increased the range on its IPO stock price to between $23 and $26 after initially setting it at $17 to $20. The $26 per share price values Twitter at more than $18.3 billion. It is a good amount of money for a company, whose business model is allowing people to communicate in 140 character bursts of information.
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It is difficult not to draw parallels between the Twitter IPO and that of fellow social media giant Facebook. Both are hot, forward-thinking companies, with recognition as household names. Everyday investors are likely eager to purchase and add both stocks to their portfolio, if only for the sake of posterity.
Twitter has taken pains to distance itself from the image cast by Facebook in its public offering — while Facebook debuted to much fanfare as perhaps the most hotly anticipated IPO of all time, Twitter has been more careful, only offering 70 million public shares of the company at onset.
All this has been done in an effort to temper expectations and avoid the pitfalls that befell Facebook in its first year as a publicly traded company.
Facebook set the bar too high in its IPO. It took over a year for the stock to come back from its debut at $38 per share. At one time, the stock fell to around $17, where it appeared destined to stay for the foreseeable future.
Twitter sought to trade on the New York Stock Exchange rather than the NASDAQ, although NASDAQ made a reputation for itself as the exchange for tech-related stocks, hosting giants like Google, Apple and Facebook. The stock exchange has suffered its fair share of technical glitches as of late, including one that stranded buyers and sellers on the day Facebook went public.
The debacle surrounding the May 2012 Facebook IPO is likely what kept Twitter away from the NASDAQ. The company experienced technical glitches on trading day, which frustrated and kept many investors from buying or selling the stock. For its involvement, the Securities and Exchange Commission fined NASDAQ more than $10 million, the largest amount ever levied against an exchange.
Wall Street will determine the fate of the company within a few hours of trading, but it will likely take several weeks for the stock to settle into a consistent pattern of trade.
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While Twitter has found a way to become profitable, the stock price of $26 makes it the most expensive IPO in history relative to revenue. That means investors will be making their buying decisions based on the potential of Twitter to become larger and more profitable in the future.