Twitter Inc. shares launched without incident Thursday, skirting the troubles that plagued rival Facebook Inc. in its debut last year and delivering the kind of hefty “pop” that investors in initial public offerings covet.
“Phew!” tweeted Anthony Noto, the lead banker on the deal from Goldman SachsGroup Inc., moments after shares started trading.
Those five characters summed up the sentiment among those involved in the market debut of the 140-character messaging service, the second-biggest U.S.-listed Internet offering ever after Facebook.
Shares opened at $45.10 on the New York Stock Exchange, up 73% from the $26 IPO price set Wednesday evening. After a bit of a churn up, then down, the excitement quickly petered out. Shares spent much of the day hovering around $46 before closing below the opening price, at $44.90.
“They wanted this deal to work. They didn’t want it to be in the penalty box like Facebook was for six months,” saidChristopher Baggini, senior portfolio manager at Turner Investments, a Berwyn, Pa., firm managing about $9 billion in assets that bought shares at the IPO price.
The San Francisco-based company raised as much as $2.1 billion and ended the day with a market capitalization of about $25 billion. That made the six-year-old company bigger than more than half of the firms in the S&P 500 and larger than well-known brands such as KelloggCo. and Whole Foods Market Inc.
The share price rise made Chairman Jack Dorsey a billionaire on paper. Chief Executive Dick Costolo’s stake was worth $345 million by day’s end. At Twitter’s headquarters, its employees—some newly minted millionaires and many wearing T-shirts adorned with the company’s bluebird logo—were feted with an overflowing doughnut tower and a lunchtime tasting menu featuring a grilled rack of lamb and fritters made of macaroni and cheese and roasted duck.
Fittingly, much of the merrymaking played out on Twitter with employees tweeting about co-workers who were tracking the stock.
Twitter has distributed nearly 86 million restricted stock units to its 2,300 employees. At Thursday’s closing price, those units have a total value of $3.86 billion, or an average of $1.68 million per employee.
But the stock isn’t divided evenly among employees. And they must hold the stock for at least one year before they can sell even one-quarter of it. The stock issued this year—more than half the total—can’t be sold until August 2014.
The outcome was a win for Goldman Sachs, which missed out on leading Facebook’s megadeal to rival Morgan Stanley last year. And it looked good for the NYSE, which has pushed to sweep up more technology listings after the Nasdaq Stock Market bungled last year’s Facebook debut. Facebook’s offering was marred by a technology glitch and shares struggled for months, after a deal that critics say was too big and too expensive.
Morgan Stanley and J.P. Morgan & Co. led the Twitter deal along with Goldman.
Twitter’s offering wasn’t a success for everyone. Because the stock gravitated little from its opening price—at one point cracking $50 before quickly declining—investors who didn’t have an inside track to the $26 price and who bought Thursday hoping for a quick rise had little opportunity to sell. And some felt priced out in the $40s.
“Buying this stock at $45 is like a child waiting to grow into his parents’ clothes,” said Nick Martinez, a Bronx-based investor who said he wouldn’t pay more than $28.
Untapped potential is what investors were paying for, as Twitter currently isn’t profitable. At a share price of around $45, Twitter is “far and away” the most expensive stock in its peer group, valued at more than 20 times expected 2015 sales, said Mark Mahaney, Internet stocks analyst at RBC Capital Markets.
That is nearly twice the level that user-generated reviews service Yelp Inc. trades at, and even further above where social networks LinkedIn Corp. and Facebook trade at, around nine times, according to RBC.
“I certainly think Twitter deserves the highest [valuation] in the space,” he said, citing fast revenue growth. “But whether it deserves double…is a hard position to hold.”
The 73% first-day gain from Twitter’s IPO price is far from unprecedented. Six U.S.-listed companies have seen their shares more than double in trading debuts this year, most recently Container Store GroupInc. last week.
But among U.S. IPOs raising $500 million or more—the larger companies less prone to first-day rallies—Twitter’s opening-day gain ranks the eighth-biggest on record, according to Dealogic.
Glenn Carell, a senior floor broker atBarclays PLC, quarterbacked Twitter’s debut on the NSYE floor, matching buy and sell orders and deciding when to open the stock, and at what price.
About 30 minutes before the opening bell, Mr. Carell had in hand orders to buy some 18 million shares of Twitter stock, a sizable amount compared with the 80.5 million share offering.
At 9:45 a.m. Mr. Carell barked out an initial, estimated trading price range at between $40 and $44. Over the next hour, as he juggled buy and sell orders, demand from investors suggested Twitter shares could open as high as $47 apiece. Then the range being called out on the exchange floor began narrowing.
Just before 10:49, Mr. Carell yelled, “The book is frozen,” and reached down and tapped the “DONE” button on his keyboard. That strike ended the stream of orders, fixed the opening “print” at $45.10, and Twitter became a public company.
About an hour later, Michelle Tandler got out of class at Harvard Business School and bought some shares at $45.69 through an E*Trade account.
Ms. Tandler, age 27, said she was drawn to Twitter because she is optimistic about companies that can “generate and capture tons of data,” she said. “I think it has a ton of potential still untapped.”
Dan Greenshields, president of online brokerage Capital One ShareBuilder, said his firm saw triple the average daily new account openings on Thursday, with Twitter representing about 50% of all the firm’s orders, primarily to buy shares.
The appetite for the shares suggests that Twitter “left money on the table” by not selling at a higher price. At $45 a share, the company theoretically could have raised $1.5 billion more for itself than it did at $26.
But the company and its advisers judged that the additional money wasn’t worth what could have been sacrificed had they priced it higher, namely good will with long-term investors who they hope will buy more shares in future offerings, the people said. Also, unlike with Facebook, Twitter insiders didn’t sell shares, relieving the pressure to price shares higher.
For Twitter’s employees, the IPO marks a turning point even if some of them can’t tap their newfound paper wealth anytime soon.
“I remember waking up this early in the morning only for taking airplanes. Today it’s for a rocket ship,” tweeted Utkarsh Srivastava, an engineer at the company.