Shares of Twitter Inc. (TWTR) closed down -3.25 or -7.24 percent on Friday to $41.65 per share. Trading in the new issue was extremely volatile on its first day, with the stock reaching a high of $50. The initial offering price of $26 per share was determined on Wednesday and was increased from the $17-$23 original offering price.
Twitter stock closed its first day of trading at $44.90 per share, up an impressive 73% from its $26 offering price. Nevertheless, some analysts claim the enormously successful Twitter IPO may have been priced too high at $26 per share when the company had originally priced the IPO at $17 per share.
San Francisco, California based Twitter is a social media and microblogging service that gives users the ability to “tweet”, meaning they can send and read messages limited to 140 characters, but with the ability to send photographs, videos and other data files. The company has been growing exponentially since its inception, with over half a billion registered users posting as many as 350 million tweets per day, at the end of 2012.
The original intention of Twitter was to set up a service where people could be followed without getting their permission. The service allows users to broadcast to a wide audience effortlessly, which has attracted many celebrities, politicians and other public figures. By tweeting, celebrities and other public figures can communicate directly with their fans, voters and constituents without having to go to regular media outlets.
More than 70 percent of Twitter’s revenue comes from its mobile services, which contrasts sharply with the shift users of smartphones and tablets have had to make. In addition to using Twitter as a messaging service, many people use the service to get news, weather and other information.
Microblogging on Twitter can also be extremely lucrative. As an example, Lady Gaga and Justin Bieber have over 40 million followers each. With this kind of follower base, tweets can easily be used to make money in a variety of ways.
The success of Twitter’s IPO could pave the way for more initial offerings in the future. After the Facebook (FB) IPO stigmatized new issues, Twitter’s success may have lifted the curse. Despite plunging to half of its $38 IPO price, Facebook has turned around and is now trading at $47 per share.
While Twitter’s valuation after the IPO may seem high, optimism in the company is not unfounded. Twitter is now following Linkdin (LNKD) and Groupon (GRPN) as a potentially successful IPO without the initial selloff that Facebook and these companies initially endured.
Euphoria continues as the IPO has created over 1,600 new millionaires, but, is now a good time to buy? Generally, if you did not get shares at $26, waiting for the stock to retrace may be a more prudent strategy for smaller investors. Caution is advised, however, trading IPO stocks is not for the faint of heart as the volatility of Twitter stock in its first two days has demonstrated.
Other News About Twitter
5 of the most profitable tweets ever
First tweet ever worth $1.3 billion to Twitter’s founder.
Twitter’s IPO could pave the way for other consumer Internet companies
Other social media and tech companies may follow Twitter’s lead.
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