The Impact of Public Frenzy on Twitter's IPO

Source: courtesy of Twitter

The long-anticipated Twitter Inc. (NYSE: TWTR) initial public offering (IPO) was as much as 30 times oversubscribed, and the shares opened at $45.10, well above the $26 IPO price. That augurs well for a first-day closing price as high as $48 a share, as gray market firm IG Markets predicted.

Getting your hands on IPO shares was nearly impossible. Institutional investors had snapped up 50 million of the 70 million shares on offer, leaving just 20 million plus the 10.5 million underwriters’ overallotment option available. And those shares were probably locked up as well.

The betting at IG Markets was 89% long and the projected valuation of Twitter on Wednesday night was around $23.65 billion. IG Markets’ strategist said:

Valuations of privately held companies are always hard to call. In the first nine months of 2013 Twitter’s revenue increased by 106% to $422 million, but losses also increased to $133 million. This latest market capitalisation valuation is derived from our clients’ trading activity and while Twitter has raised its target share price this week, it still points to the shares almost doubling on the first day of trading.

While there is no fully functioning prediction market in the United States, a market called IEM exists that is restricted to academics and allows total bets of $500. Forbes notes that IEM quite accurately predicted the IPO price of Google Inc. (NASDAQ: GOOG) stock prior to its IPO at $85 a share in 2004.

Twitter’s shares are trading up nearly 75%, at around $45.33 in the late morning, after hitting a high of $50.00 earlier. That $48 prediction for a closing price looks like it might be a bit low.