Twitter Inc. jumped 73 percent in its trading debut Thursday, as investors paid a premium for its promises of fast growth.
The stock rose to close at $44.90 from the initial public offering price of $26, delivering the biggest one-day pop for an IPO that raised more than $1 billion since Alibaba.com Ltd. debuted in 2007, according to data compiled by Bloomberg. Twitter sold 70 million shares, raising $1.82 billion.
The microblogging website picked a price that valued it higher than Facebook Inc. and still drew more interest than anticipated. The San Francisco-based company, which is unprofitable and has one-fifth as many users as Facebook, is benefiting from investors’ thirst for companies that will grow quickly in expanding markets like mobile advertising.
“The company did everything to secure the most cash for itself while leaving some money for the IPO buyers,” said Josef Schuster, the founder of IPOX Schuster LLC, a Chicago-based manager of about $1.9 billion. “You need a pop at the opening to leave a good taste with everyone. They did a pretty good job managing the whole situation.”
At the current price, Twitter is valued at $24.9 billion, or 22 times estimated 2014 sales of $1.14 billion, according to analyst projections compiled by Bloomberg. That compares with 11.2 times that Facebook traded at Thursday, and price-to-sales ratio of 11.7 for LinkedIn Corp.
Facebook declined 3.2 percent, and LinkedIn fell 4.2 percent on Thursday. At its market debut in 2012, Facebook’s stock was flat, propped up by bankers, while LinkedIn’s more than doubled on the day it went public in 2011.
The pricing puts the onus on Twitter to deliver on its promises of fast growth after earlier pitching shares as low as $17. Chief Executive Officer Dick Costolo has rallied investor interest in Twitter’s rapid sales curve – with revenue more than doubling annually – even with no clear path to making a profit.
The company received orders for about 30 times as many shares as it offered at the $26 IPO price, a person with knowledge of the matter said. About 8 million of the shares, or 11 percent of the total in the IPO, were allocated to retail investors, the person said, asking not to be identified because the information is private. A typical retail allocation is 10 percent to 15 percent.
Still, any price over $40 reflects “hype” and makes Twitter too risky of an investment, said Jeffrey Sica, president and chief investment officer of Sica Wealth Management LLC in Morristown, N.J.
“I anticipated a very strong open, but when you start to approach these levels, this is absolute froth,” he said. “There is nothing supporting this range. I think this is just way, way above what realistically we should be considering a stable open.”
Brian Wieser, an analyst at Pivotal Research Group in New York, downgraded Twitter to a sell rating with a $30 price target.
“If you’ve got it, sell it,” Wieser said in an interview. “If there are willing buyers who have a view of the business today that gets them comfortable with this valuation then those people should hold it, but I can’t get there, and I’m not recommending my clients to hold it.”
CEO Costolo was at the New York Stock Exchange for the stock’s debut under the TWTR symbol, along with CFO Mike Gupta and co-founders Evan Williams, Biz Stone and Jack Dorsey.
After the celebration at the exchange, executives dispersed. Costolo went to the New York Twitter office to talk to employees, then flew to Twitter’s San Francisco office to do the same. Twitter’s website and applications let people post 140-character messages to friends and online followers. Dorsey sent a tweet to congratulate the company’s executive team, receiving more than 200 retweets.
“My first of four client presos today starts in 10 mins. Back at it,” Adam Bain, Twitter’s president of global revenue, said in a tweet.
Twitter’s $1.82 billion IPO is almost as much as the $1.9 billion that Google Inc. raised in its 2004 IPO and makes it the largest IPO by a U.S. technology company since Facebook’s debut in May 2012. Goldman Sachs Group Inc. led the sale, working with Morgan Stanley and JPMorgan Chase & Co.
The price rise underscores how Twitter has so far sidestepped some of the pitfalls that befell Facebook’s IPO last year. Facebook’s offering was marred by a trading snag on the Nasdaq Stock Market and investor backlash over its valuation. The company at the time was priced at 107 times trailing 12-month earnings on a fully diluted basis, making it more expensive than 99 percent of all companies in the Standard & Poor’s 500 Index. Facebook saw its stock quickly sink below its $38 debut price, a level it didn’t cross back above until this August.
Twitter’s stock gain may erase some of the aftertaste of the Facebook, Zynga Inc. and Groupon Inc. IPOs, each of which lost half their value within six months of their debuts, sending a chill over consumer-technology IPOs and some Silicon Valley startup valuations.
Demand for Twitter’s stock exceeded the supply even before bankers started formally asking for orders, people familiar with the matter have said. On Monday, Twitter raised the proposed price range for the 70 million shares sold in the IPO to $23 to $25 each, up from the earlier range of $17 to $20.