Twitter will be floated on the New York Stock Exchange (NYSE) today with an asking price considerably higher than originally anticipated. With an IPO as high as $27 a share, it gives the company an assumed value of around $15.3bn – several million dollars more than when the floatation was mooted in September.
Approaching the market with such a high valuation is a risky strategy. When Facebook tried it in May last year, the result was a price that dropped abruptly towards the end of trading, disappointing investors and generating a lot of bad publicity for the social media giant – not to mention lawsuits.
Many businesses prefer to start in the mid-range in the hope that the share price will rise as the end of the day approaches, placing them in a stronger position. As Twitter was able to use special legal provisions to delay announcing its share price until the last minute, one of two things could be going on. It could have established what it expects to be a stable price across the day, or it could have been inspired to take a chance on indications that shares are in high demand.
The practicability of investing in Twitter is complicated by the fact that, despite its extensive user base, it does not yet make a profit; in fact, its losses have tripled in the past year. Over the last three months, however, it has doubled its revenue, and its direction appears to be sound. Reactions to this within the investment community are divided, with around half reportedly considering it too risky a bet.
Probably the most appealing things about Twitter, from an investment perspective, are the steadiness of its growth and the fact that, despite being regarded as a "category killer" company, it still has plenty of market space to grow in. This means it is most likely to be attractive to those looking to make long term investments; in turn, this could fortify stability.
Whatever happens as a result of the floatation, Twitter will receive a big cash injection over the course of the day, enabling it to strengthen its position and put more emphasis on growth. This has to be good news for businesses with an established presence there, and good reason for others to work on developing such opportunities.