Will it be smooth sailing for Twitter's IPO?


Since the 12th September, when Twitter filed to go public, the media has been full of appraisals, assessments and updates about the coming IPO. Now, with the share price to be set later today, and trading to begin tomorrow, there’s debate as to how this is going to pan out for the social media giant, and whether it’s worthwhile investment.

Inevitably, Twitter’s IPO has been compared to Facebook’s public offering that took place in May 2012. Initially Facebook’s stock price rose to as much as $45, but this gain was short lived – its share value fell during nine of the following 13 days and it lost half of its value in the first three months. However, ultimately this instability has given way to recovery, with a steady rise in stock price growth in 2013 so far.

Now, 18 months later, the New York Stock exchange is getting ready to host the debut of Twitter Inc in the most anticipated offering of 2013. And of course, some observers are suggesting that like Facebook, its flotation might be a bit rocky.

There are some big differences between the two, though. Significantly, Facebook sold shares on the Nasdaq market. Technical faults delayed opening trade and meant that people didn’t know whether or not they had actually traded, leading to a detrimental sense of uncertainty.

In contrast, Twitter has chosen to trade on the New York Stock Exchange who did a trial run of the Twitter IPO on 26th October, to ensure their systems could handle the demand.

Scott Cutler, executive vice president and head of global listings at NYSE Euronext claimed to be “confident in the systems, the technology and the people that all play into opening the stock ultimately at the right price.”

Added to this, Twitter has been keen to learn from Facebook’s mistakes, adopting a relatively conservative approach to the IPO.

While the higher share valuation announced earlier this week might seem like a move away from this careful attitude, Adam Grossman, analyst at investment firm Middleton & Co, pointed out that Twitter’s bankers were conservative in not raising the size of the offering as well, which was what caused problems for Facebook.

And the announcement that investor demand has driven the prices up, before trading has even begun, is generally a good indicator. Various equity research analysts have said they expect Twitter shares to rise after they begin trading, with some setting their one-year price target as high as $52.

But this doesn’t make Twitter’s public offering a low risk investment. Twitter recently announced widening losses in the third quarter of 2013, and yesterday Businessweek revealed that Twitter has dipped in search trends by 20% in the last four months, explaining that a decline like this “doesn’t necessarily mean the IPO is bad for investors, but it’s not the most promising sign.”

People aren’t convinced that Twitter is a lucrative investment. A recent CNBC-AP poll has revealed that nearly half of active investors are not positive about the company’s investment prospects, and 52% of 18 to 34 year olds – Twitter’s most frequent users – said they wouldn’t be buying shares.

Many potential investors will be closely following tomorrow’s developments, some deciding it’s worth jumping in and some staying clear. And while many will be sceptical, if all goes according to plan for Twitter then a lot of people could end up regretting their decision to be cautious.