Now that’s something to Tweet about

On Thursday 7 November Twitter started trading on the NYSE, raising $2.09 billion from the placing.

By the close of its first day’s trading, Twitter’s shares quoted on the NYSE were priced at $44.90. Should this surprise us?

Grey market 

For the last two weeks the IG grey market, which opened in the middle of September, saw a healthy flow of traders buying and selling the company around the $44 level. Following on from the success of Royal Mail’s IPO, this grey market was broadly seen as the most liquid and easily traded platform available to UK equity traders. More than enough eyes have been watching this price over the last six weeks to ensure that if there had been a discrepancy between the IG spread and the underlying market valuation, somebody would have come in and taken advantage of it.

Fair value?

The debate over what a fair value is for an, as yet, unprofitable technology stock has been raging for years, and yesterday only added fuel to that fire. The bottom line has and will always be dictated by the balance of supply and demand; something is worth what people are willing to pay for it, and in Twitter’s case the value being placed on potential is far greater than in almost any other comparable equity.

Converting users to profit

On a number of occasions Twitter CEO Dick Costolo has outlined that the company believes that the funds raised in its placing will enable it to more successfully convert users into a more profitable asset, while at the same time ensuring that they do not alienate them from the very product that they know and love. It is his conjecture that there are some 2.5 billion social media users globally, and at present less than 10% of them use Twitter. Converting a bigger market share of those users will be one of the firm’s main targets.

Twitter attractive to advertisers

Most people have sighted figures surrounding Facebook when trying to gauge where Twitter is in its hunt for profitability, though it would be fair to say there are advantages Facebook has – the most obvious being that Facebook has over 1 billion users in comparison to Twitter’s 200 million plus.

That being said, an advantage of Twitter’s lies in the way its followers use the social media platform – Facebook users visit the site considerably less frequently than their tweeting counterparts. Also, 70% of Twitter users do so from a mobile device, which gives the ability to target by demographics and location. Both these factors combine to offer advertisers a more valuable target market.

Ultimately, only time will tell if Twitter’s management team is able to grow the user base while at the same time monetising this asset. They have the platform and now the funds to expand, develop and improve – now is the time to convert that potential into profit.   

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