Most investors aren’t getting the early-bird special on Twitter shares. In fact, Twitter stock will cost $26, the final price just set by the company, for banking insiders with early access.
But when the stock starts trading on the New York Stock Exchange on Thursday, after the opening trade, shares are expected to cost at least $30. “We’re hearing it will open above $30,” one Wall Street insider said. “That’s the assumption.”
A number of insiders told Adweek that Wall Street expects an opening day pricing surge of about 20 percent. That sort of first-day pop is key for everyday investors, who don’t get privileged entrance to early shares. Plus, the early price will be closely watched by institutional investors tasked with buying large orders of Twitter shares.
Even the early investors want more shares than banks allotted to them, one analyst told Adweek. “You could have a price surge purely on people filling out positions,” this source said, meaning that demand should balloon as institutional investors need to fill orders for hundreds of thousands of shares.
There have been the typical signs that demand is strong for the Twitter IPO, and the company announced that the offering is seeing more buying interest than it can handle.
Of course, once the trading bell rings there are no guarantees of a successful first day. In May 2012, Facebook finished its opening day barely above its opening share price of $38. On that day, Facebook's stock initially jumped from $38 to $42 after the opening. However, anyone who bought at $42 was disappointed, since for more than a year the stock struggled to regain losses in its initial public months.
Twitter has managed its IPO process looking to avoid Facebook’s fate.
It would prefer a LinkedIn-like scenario. That company went public in May 2011 and shares nearly doubled on Day One. The opening trade increased the share price 84 percent.
When pricing an IPO there is no exact formula. In LinkedIn’s case, money was left on the table, because the company sold $45 shares that were worth $94.25 on the open market.
Twitter has watched both those case studies and tonight will set the final price for its 70 million shares that will start trading publicly Thursday.
The company initially priced its stock at $17 to $20, and this week, citing robust demand, increased the price range to $23 to $25. The final price was set even higher this evening upon closing the IPO books, but some on Wall Street said the higher $26 price would push investors’ limits.
“They don’t want to go much beyond that because they don’t want to run into the Facebook problem,” a banking source said.
Facebook scared off investors by not only raising the IPO price at the last minute, but also increasing the number of shares that it would sell, allowing its insiders to make more money from the deal.
Twitter is selling fewer shares —as a percentage of outstanding shares— than Facebook, and none of its early investors and shareholders are cashing out, which is a signal of confidence on Wall Street.
Twitter ultimately raised more than $2 billion in the sale.
There are three keys to successful opening day on Wall Street, according to analysts:
1. Price shares at or above the high end of the range.
2. Open higher than the IPO price.
3. Close even higher.
If those three milestones are met than there is little room for anyone to complain, but if not, you know where to find the outrage —on Twitter.