November 9, 2013

First-day pop followed by second-day drop for Twitter stock

Limited insight into how well a company can do in the long run often leads to volatile trading, analysts say.

By Barbara Ortutay
The Associated Press

NEW YORK — Twitter’s stock slid more than 7 percent on its second trading day Friday, after the popular short messaging service saw a huge first-day pop in what turned out to be a smooth public debut.

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TWITTER COMPARISONS

For some perspective on Twitter’s early performance, here’s a look at how other prominent technology stocks did in the week following their initial public offerings and how they’re faring now:

Facebook Inc.

World’s largest social network, first day of trading on May 18, 2012

IPO price: $38 per share

A week after the IPO: $31.91, down 16 percent

Friday: $47.64, up 25.4 percent

Zynga Inc.

Developer of online games, first day of trading on Dec. 16, 2011

IPO price: $10 per share

A week after the IPO: $9.39, down 6.1 percent

Friday: $3.51, down 64.9 percent

Groupon Inc.

Online deals company, first day of trading on Nov. 4, 2012

IPO price: $20 per share

A week after the IPO: $24.25, up 21.2 percent

Friday: $10.20, down 49 percent

LinkedIn Corp.

Online professional network, first day of trading on May 19, 2011

IPO price: $45 per share

A week after the IPO: $86.37, up 91.9 percent

Friday: $214.99, more than four times the IPO price.

Yelp Inc.

Online reviews site, first trading day on March 2, 2012

IPO price: $15 per share

A week after the IPO: $19.80, up 32 percent

Friday: $63.62, more than four times the IPO price.

Such volatile trading is common for freshly public stocks as investors make decisions with limited insight into how well companies will do in the long run. Although there are a few outliers, most analysts believe the appropriate price range for Twitter’s stock is in the $30s and low $40s. The mean target price analysts have set for the stock, according to FactSet, is $40, with targets ranging from $29 to $54.

Wedbush analyst Michael Pachter arrived at his $37 price target by assuming Twitter will double its 230 million monthly users to 460 million over the next five years while increasing the number of times users look at Twitter every day. Pachter estimates Twitter will deliver $3.5 billion in EBITDA – earnings before interest, taxes, depreciation, and amortization – by 2018.

“Twitter is likely in the early innings of its growth,” Pachter wrote in a note to investors. “We believe that the majority of the world’s 2.4 billion Internet users have great potential to find something or someone on Twitter that they are interested in.”

San Francisco-based Twitter’s stock fell $3.25, or 7 percent, to $41.65 in trading on Friday despite an uptick in the broader market.

The shares are still up 60 percent from the $26 IPO price Twitter and the IPO’s underwriting bankers set Wednesday night. Twitter made $1.8 billion in the offering. On Thursday, the company’s stock jumped 73 percent in its first day of trading, creating hordes of new millionaires –and even a few billionaires.

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