Pricey Twitter Hits the NYSE Today at $26 A Share

Twitter becomes one of the most high-profile US initial public offerings since Facebook today. After raising its starting price range once, it boosted the share price even higher, causing concern among some investors.

Is a mere social messaging service that's still losing money and will only generate revenue of about $620 million this year really worth $18 billion dollars? That's the big bet investors will have to decide.

You Only IPO Once

As a public company, Twitter will be under pressure to monetize its hundreds of millions of users, promoted tweets and other assets. But the IPO has even more meaning for investors. It is a test for the stock market after the embarrassing start to Facebook's trading life and other recent network failures that have halted deals.

But the speculation is there will be plenty of investors eager to get in on the Twitter action. The company's stock is expected to do a brisk trade when the New York Stock Exchange sounds the opening bell at 9:30 EST today. There are those who are always willing to bet on a first day spike — investors who may only hold the stock for minutes or hours. However, other investors seem convinced the company is a solid bet and will try to maximize their positions or to benefit from any perceived short term weakness if the stock dives.

Still, the IPO begs the question. Is $26 a share too much for 140 characters and 230 plus million active monthly users? The company has a price earnings (P/E) ratio of around 27. It's valuation makes it more expensive than Facebook, a profitable rival with five times as many users.

Analysts don't expect Twitter to see black ink until well into 2015 or beyond. But if you are intrigued nonetheless, you can follow today's action live on MarketWatch.

Here is the reality. Twitter will prove to be a successful investment if it can generate revenue without losing its users. It has to find a way to monetize without annoying users with too many advertisements, sponsored content or other intrusions on tweet streams. There's also the risk that Wall Street could ruin Twitter.

No doubt Twitter CEO Dick Costolo and his team have all sorts of plans. But they tread a fine line between growing the user base and making money. Notably they need to grow advertising revenue outside the US while significantly growing the userbase, which is dwarfed by Facebook. Twitter's biggest strength is that the userbase does most of the work, creating hashtags, breaking news and sharing tweets that bring in more users and activity.

Playing With Money

At $26 a share, the IPO will generate $1.82 billion (before costs) for the company to play with — plenty of cash for further acquisitions. Twitter's best known mergers and acquisitions were TweetDeck, Posterous and Vine. But it has more recently acquired lots of back-office tech companies like Ubalo, a company that provides various services designed to speed the coding process, and Lucky Sort, a startup specializing in data visualization, plus several advertising companies to help developer its revenue sources.

Where Twitter goes from here is partly up to the company, with a massive focus on the revenue per user metric. The company is hiring business development managers for mobile to improve the app experience, where most of the users see and create their tweets.

It is also focusing on the media, and likely wants to improve the value and profile of curated or authoritative tweets from big media names. A recent example of this evolution saw the introduction in imagery making brands happier than the users.

However, it will also be driven by the user base. Imagine if a superuser like Katy Perry or Justin Bieber, the Catholic pope or a sports star like Le Bron James ditches Twitter for a new rival or leaves the service because of a low-quality user experience, abuse (hence, the recent introduction of the "Report Tweet" option) or another problem.

That could trigger a sea change among users that becomes a tidal wave of defection or dissatisfaction. Twitter will also be a huge target for hackers. While the infamous Fail Whale is largely a thing of the past, Twitter suffers regular glitches and any concerted attack will negatively impact perception. More to the point, people will have to flock to a rival service to post their "Twitter is down" messages.

For businesses, websites and content creators, the IPO won't immediately change their engagement with Twitter or end users. But it does put them on notice that changes could come quickly — and everyone needs to be ready to adapt to them.

Source : cmswire[dot]com

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Nov 7, 2013