Story by Jennifer Gardner
Although Twitter has been in the public eye since 2006, it’s finally announced it’s going public on Nov. 6. Despite a huge fiasco with Facebook’s IPO (initial public offering) in May 2012, investors seem optimistic about Twitter’s prospects of making a fortune when the stocks begin trading.
Last Saturday, the New York Stock Exchange held the first ever test IPO for Twitter to work through any potential problems that might occur with a high-profile IPO. The technical glitches experienced while trading Facebook shares resulted in huge lawsuits of money lost (allegedly over $500 million), which Twitter hopes to avoid by working out kinks before the big day.
Sophomore Greta Gillen isn’t convinced that the test runs will help.
“I just read an article on USAToday that they did test runs (for the IPO) and they were successful,” Gillen said. “Maybe it will be better than Facebook, but they are really similar, so it could just as easily go the other way.”
While the analysts predict a huge payout for Twitter, sophomore Robert Razcka doesn’t share the same enthusiasm. His concern lies in Twitter’s business model.
“Personally, I wouldn’t invest in Twitter stock because I prefer to go with more conventional companies,” Razcka said. “It’s risky to buy stock in a company that doesn’t actually sell a product and just relies on selling advertisements to make money.”
Twitter plans on selling around 70 million shares for a seemingly reasonable $17 to $20 a share.
This relatively conservative estimate (Facebook stocks were originally valued at $38 to $40) seems to be making investors more confident that the stock isn’t overvalued for the IPO like Facebook’s stock was.
If these numbers are accurate, approximately $1.6 billion will be made from the IPO, and investors who can get their hands on the stock early have a great chance of making money, especially if the price jumps like investors are hoping.
As a former investment banker who helped take many companies public, entrepreneurship professor Tom Swartwood believes that the success of Twitter’s IPO depends entirely on the investor’s attitudes. “If there’s an expectation of getting in and getting out right away, then their IPO won’t go well,” Swartwood said. “It’ll open at a high price and everyone will sell and then supply-and-demand will kick in and it’ll go down. That’s what happened to Facebook. Their stock was aggressively overvalued and the stock market was ruthless. When I did deals, I would tell investors that they should expect to hold the stock for a year. Don’t buy the stocks thinking you can get out of it next week and make a lot of money. That’s not how that works.”
Despite her skepticism, Gillen says she wouldn’t rule out buying Twitter stock.
“I think [Twitter] is something that’s really up-and-coming, and I think investing in technology is very smart,” Gillen said. “Google and Apple are two of the most valuable stocks out there, and if people had bought them when they were first available, they’d be mega-millionaires by now. “
Swartwood stressed the importance of investing in companies/products you understand and use because you’ll have a better grasp of the potential.
“With something like Twitter, Facebook and Google, you aren’t buying it because it’s valuable now. You’re buying it because you think it’ll be valuable in the future,” Swartwood said. “Buy stock in companies you’ll see yourself using for a long time.”