WASHINGTON, November 6, 2013 – The IPO of Twitter has been priced at $26 per share. That’s a dollar above the top of its already upward-revised range of $23-25 per share, but below the $27 price that was being discussed this afternoon.
Institutions and bigwig traders are likely rejoicing as, given the large interest in the new stock (proposed NYSE symbol: TWTR), it’s likely to pop, at least on the open, allowing them to unload their shares at what could be a nifty profit. Retail investors—read mom and pop—are unlikely to be quite as happy, however. Statistically speaking, they’re not going to get any.
According to the Wall Street Journal in a brief post this evening, the investment banks underwriting the IPO “aimed to place the bulk of the shares with a relatively small number of long-term investors, investors briefed on the deal said. About three quarters of the shares were set to be placed with around 30 investors, the people said.” In other words, the rich 1% will likely be getting richer tomorrow morning in America.
At $26 per share, TWTR is being nominally valued at $14.6 billion, a colossal amount when you consider that this is a company that’s never made a dime of profit. The pricing puts it in a league with retailers like Macy’s (M) whose market cap is around $17 billion or Bed, Bath, and Beyond (BBBY) with a market cap of about $16 billion.
Nonetheless, IPOs like this one in many respects are pure speculation, attempting as they are to put some kind of value on a business that has no real model or viable competitor, at least in the sense of Twitter’s unique messaging format.
The Prudent Man has been known to speculate a bit on the side and is in for 500 shares of Twitter at the moment. The problem, though, is this: he’s not a member of the 1% club and is not likely to get any shares, given the WSJ stats above. (See also our related article in our other column here.) Controversial CNBC online stock picker Jim Cramer—who is generally more prescient than his TV antics would indicate—expressed concern about the fallout from this during his “Mad Money” show this afternoon.
According to CNBC, he worries “that institutional investors will pressure their brokers into buying as many Twitter shares as possible, only to turn around and sell them at a much higher price to retail investors.”
According to Cramer, “The big boys are betting that other, less informed investors—people who use Twitter and love it, people who don’t know how to value the stock but just figure how can you go wrong—are going to come in and buy the stock from the professionals at much higher prices than they could hope to get on a pure valuation basis.”
That’s often what happens with so-called “hot” IPO offerings, most notoriously with the disastrous Facebook (FB) IPO. It’s clear from the way the Twitter deal has gradually evolved that the IPO’s underwriters are trying not to get too greedy and overreach by overpricing the shares and throwing too much stock into the deal—the absurd and almost cosmic error made by Facebook’s underwriters.
That said, Twitter’s valuation, as based on the IPO price, still seems rather rich. In addition, retail investors once badly burned by the Facebook IPO, are not likely to get caught holding the bag for the institutional investors this time around, which will make the aftermarket interesting. It will likely prove to be a battle between whatever pent-up demand is not being addressed by the IPO shares and the cynicism of retail and small institutional investors.
Whatever the case, we’ll likely get an initial read on TWTR’s reception some time around 10:30-11:30 a.m. EST when the stock is likely to open on the NYSE. It’s only then that we’ll all find out whether this current “hot” IPO turns out to be a pick or a pan.
In the meantime, our own advice is this: if you’ve put in for shares of the IPO and don’t get any, or if you’re waiting around to buy TWTR on the open, don’t. Chasing a hot IPO—assuming that TWTR turns out to be one—is, historically and statistically, nearly always a loser’s game.
For a late morning followup, visit our upcoming November 7 Market Maven column which we plan to post sometime after 11 a.m., depending on when TWTR begins to trade.
Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate. He is attempting to get his hands on a token amount of upcoming IPO Twitter (proposed symbol TWTR).
Positions mentioned above describe this author’s own investment decisions and should not be construed as either buy or sell recommendations. The current market is highly treacherous and all investors travel at their own risk, so caution should be exercised at all times.
Illustrations, charts, commentary, and analysis are only the author’s view of current or historical market activity and don’t constitute a recommendation to buy or sell any security or contract. Views, indications, and analysis aren’t necessarily predictive of any future market or government action. Rather they indicate the author’s opinion as to a range of possibilities that may occur going forward.
References to other reporters, analysts, pundits, or commentators are illustrative only and do not necessarily represent an endorsement of such individuals’ points of view. If specific investment vehicles are mentioned in any article under this column heading, the author will always fully disclose any active or contemplated investments in said vehicles.
Read more of Terry’s news and reviews at Curtain Up! in the Entertain Us neighborhood of the Washington Times Communities. For Terry’s investing and political insights, visit his Communities columns, The Prudent Man and Morning Market Maven, in Business.
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