Initial Public Offering of Twitter

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Twitter was established in 2006 under the parent company Odeo. This form of social media is interesting in the way it ties news and socialization into one place while the max characters allowed in one post is 280. News outlets post breaking news on their Twitter accounts, and former president Barack Obama announced his second term election through a tweet accompanied by a picture of him and the First Lady. Twitter’s monthly users grew rapidly from 10 million in the first quarter of 2010 to 231.17 million in the third quarter of 2013, right before Twitter announced it was going public. Experts and analysts questioned whether it was a smart idea for a firm that had no current profits and was still quite young in terms of other firm’s age when going public, but only time would tell.

In Twitter’s S-1 form filed with the SEC, on October 6th, 2013, it briefly discusses the motivations behind the firm’s decision to go public. It mentions increasing the ability to raise capital, as well as using the money for other uses such as paying off taxes associated with the restricted stock units. Before Twitter went public it distributed 92,860,555 restricted stock units to non-executive employees. The tax ramifications for employees was estimated around $420,000 each. Twitter stated it would put around $100 million of the anticipated capital raised towards the tax obligations. Also stated in the form is the intention to use the money for capital expenditures “in 2013 of approximately $225 million to $275 million, and [Twitter] may use a portion of the net proceeds to fund [the] anticipated capital expenditures.”

In the S-1 form Twitter lists and discusses the risks that threaten their firm’s success. If the user base does not grow, then quite obviously the advertisers will not pay as much to use the platform. Also, if the tweets and content posted on the service are not valuable, then users will start to find different platforms to use. Another risk the firm mentioned is how once it goes public, shareholders of over 5% will have the ability to influence transactions, therefore they forgo complete control. Twitter also released their growth strategies. The firm’s main goal was to grow their user base, specifically internationally. If it can grow the users overseas then global advertisers would be willing to spend more money to reach more consumers.

Twitter chose Goldman Sachs as the lead banker for their initial public offering, while having JP Morgan, Morgan Stanley, Bank of America Merrill Lynch, Deutsche Bank, Allen & Co. and Code Advisors as other underwriters. Goldman Sachs was set to receive 38.5% of the fees while Morgan Stanley received 18%, J.P. Morgan 15%, and 8% each for Deutsche Bank and Bank of America Merrill Lynch. Allen & Co. was to earn 7% and Code Advisors half a percent.

The Twitter initial public offering was an important opportunity for both stock exchanges, most likely more important to the markets than to Twitter itself. Facebook went with the NASDAQ as their market for its initial public offering the year before, and due to a technological error where there was no communication from NASDAQ for the first 28 minutes of Facebook being public, it resulted in them to being fined $10 million by the SEC. There was no official statement as to why Twitter executives chose the New York Stock Exchange over the NASDAQ but some could speculate Twitter did not particularly like the market’s recent track record. Goldman Sachs originally listed the debut price range from $17 to $20, but the demand grew in the days leading up to the initial public offering date that the firm increased the price to $25 the night before it went public, but finally settled at $26.

On November 7th, 2013 Twitter entered the New York Stock Exchange and sold 70 million shares at a starting price of $26. The underwriter discount came in at $0.845 a share, so Twitter’s revenues were $25.15 a share. At the end of the first day Twitter had raised $1,760,850,000. According to the S-1 filing 51.4% of common stock will be held by “executive officers. Directors and holders of 5% or more of [the] common stock”. Once individual investors had a chance to buy Twitter the price had jumped into the $40 range. The day high came in at $50 and closed at $44.90. For the individual investors who bought in the $40 range did not feel exceptionally excited, and that continued to the next day when Twitter stock closed at $41.65. The end results were market capitalization of $25 billion which put Twitter in the top half of the S&P 500 firms.

For the remaining month and a half of the year Twitter reached a high of $74.73 the day after Christmas and closed out the year at $63.65. At year end initial investors had seen an increase of 144.8% in the price. The weekend of February 14th, 2014 was the first chance Twitter employees had to sell their shares. Executive employees were not allowed at this point, only 9.9 million shares would be available to sell. Twitter made 1.8% of shares available “mainly to give non-executive employees a way to settle income tax expense from vesting shares.” Analysts did not expect huge price changes before the release because of the small number of shares being released. On May 6th, the 180-day mark, Twitter then released 480 million more shares, with an estimated 135 million shares being traded, this was “10 times the normal volume”. The stock price closed on May 6th at $31.85, which was the lowest the price had dropped since the initial $26.

Since Twitter’s 2006 startup it reported its first quarterly profit in quarter 4 of 2017. The profit came in at $91 million. The first quarter of 2018 also turned a profit, lower than the previous, at $61 million. Even with these positive reports, the stock price has dropped due to the declining numbers of monthly average users. Twitter has been working on removing spam accounts which could be contributing to their falling numbers, but the firm has stated they do not plan on ending the removal process even if it is affecting investors hope in the firm. Overall, Twitter’s stock price has remained relatively close to the original initial public offer price, but it will be interesting to see if investors continue to feel that Twitter is not making the progress it should be.

Cite this paper

Initial Public Offering of Twitter. (2021, Jun 27). Retrieved from https://samploon.com/initial-public-offering-of-twitter/

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