Twitter’s IPO: How High Can It Go?

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ADOTAS — Twitter announced its final price per share last night: $26, putting its value at $14.2 billion. Its stock begin trading on the NYSE this morning.

As they did ahead of the Facebook IPO, IG set up a grey market as soon as Twitter filed its S-1, enabling its clients to take a financial position on the company ahead of the official debut. This gives a good indication where investors think Twitter should be valued and provides IG’s analysts with unique insights ahead of the IPO.

The current mid-price of $23.75 billion on IG’s Twitter grey market indicates investors expect to see a share price of $43.60 at the end of day one. This is down sharply from nearly three weeks ago, when the expected market cap hit $33 billion, equal to more than $60 a share. The grey market has since levelled off, which usually indicates investors believe it has reached a fair value. The same ran true for the UK Royal Mail grey market which indicated investors thought the stock was heavily undervalued.

“This is the largest Silicon Valley IPO since Facebook and underwriters of the floatation will be keen to make this more of a success in comparison,” said Brenda Kelly, technical analyst at IG.”The good news is that extensive hype in advance of the Facebook IPO – blamed to an extent for its less-than-impressive debut on the stock market – has been avoided. The decision to list on the NYSE was also clearly inspired by the disastrous delay in Facebook trading, due to a glitch in the NASDAQ computer.

“It must be remembered that Facebook was, and is, a much bigger company — it had 900 million users when it went public, and has more than a billion today — and its size was one of its big selling points. Also unlike Facebook, Twitter has yet to turn a profit. The company reported a net loss of $79.4 million on revenue of only $316.9 million in 2012. Given its active user base the company does have great profit-making potential, but monetising this potential is a different story – something that early investors in Facebook learned the hard way.”

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