Twitter shares opened at $45.10 and jumped to $49, or 89 per cent higher than their flotation price, giving investors in the social networking site a huge instant premium and creating at least three billionaires.
It also gave sceptics something to think about. Either they have massively underestimated the potential of a company just seven years old and yet to make a profit, or they will prove to be wise after the event when reality kicks in and the price falls back.
At this valuation Twitter is worth more than Marks & Spencer and Sainsbury’s combined, two companies which are making hundreds of millions of pounds in profit and paying handsome dividends. Twitter investors cannot expect a dividend any time soon.
But the high valuation is as much a statement about the maturing status of social media. After its well-documented wobbles, Facebook is now trading above its flotation price while LinkedIn, the business networking site, has seen its shares rise fivefold since it floated two years ago.
Twitter’s advisers were obviously determined to avoid the debacle that befell Facebook investors and priced the issue much more cautiously. But it is the LinkedIn model that Twitter most closely followed.
LinkedIn’s revenue per user has risen threefold and Twitter came to market with double LinkedIn’s pre-flotation revenue. However, LinkedIn was already profitable and profits look to be beyond Twitter for at least two years.
There has been much talk of another technology bubble, but those sceptics should note that so far the record has been positive. Google has already rocketed and older stocks such as Apple have become among the most valuable companies in the US.
Twitter has had time to assess other models to decide what works and what obstacles to avoid. Crucially, 65 per cent of its revenues come from mobile advertising.
While its users may fear the loss of innocence that has attracted 215 million of them to subscribe to it, the opportunities for now seem to outweigh the potential setbacks.
ECB’s move puts UK firms under pressure
THE unexpected move by the European Central Bank to cut its main refinancing rate to 0.25 per cent took the markets by surprise, though it followed pressure to take action after inflation in the zone fell to 0.7 per cent.
Mario Draghi, the ECB president, has pledged to save the euro at whatever cost and yesterday indicated that the zone could tolerate a period of weakness in the currency. The economies that make up the single-currency area have been showing some early signs of recovery but the ECB clearly believes it remains fragile and wants to give companies a helping hand.
British companies will be not be so happy now that the price of selling their goods into Europe has just got a little more expensive.
Aegon’s saving grace is a blessing for future
IT HAS been a tough two years for Aegon UK but yesterday’s new business figures suggest that the restructuring has been worth it.
Chief executive Adrian Grace is preparing to roll out new products next year and put the naysayers back in their box.