Twitter IPO: Speculation

With Twitter only recently announcing its interest in performing an IPO, investment banks were already fighting over who should get to do the underwriting. Anthony Noto, a dot-com era analyst and head banker for Goldman Sachs, got the nod. The twitter IPO will be the largest IPO for a U.S. technology company and Goldman Sachs will be the lead underwriter. Twitter released its IPO filing this past week via the U.S. Securities and Exchange Commission, using a $1 billion placeholder amount.

This deal is a success not only for Twitter but also for Goldman Sachs. Goldman Sachs has secured the
largest social-media deal in history. This helps Goldman Sachs bounce back after the investment bank was overcome by Morgan Stanley for the top spot on social-media deals from LinkedIn Corp.  and Facebook Inc. Noto, the co-manager of technology investment banking with George Lee, has helped drive new deals for Goldman Sachs, especially one with his past employer, the NFL. His profile as a banker, already coming from an established one, has magnanimously increased. What can we expect from this IPO?

If Twitter were to raise the amount it reported as the placeholder amount in the filing, then this would be Goldman Sach’s largest IPO underwriting of a U.S. technology company. While Noto and Goldman Sachs were able to secure the IPO above Morgan Stanley and other banks, the bigger battle still lies ahead: selling the IPO to public-market investors still recovering from Facebook’s offering last year. The Facebook IPO was incorrectly priced, perhaps too high at $38 apiece, and eventually investors didn’t find that much value in the stock, driving it to lose half its value over the next few months. What this did was upset consumer preferences and will definitely make investors going forward concerned with the legitimacy of the pricing of the IPO. As a result, Twitter is likely to leave money on the table and pricing the IPO at a price slightly below its sensible price just so that the stock sees great returns. This is obviously a risky move as not only Twitter but Goldman Sachs could lose a lot of money.

The true pricing of the IPO is still to come and the final price will be the only determining factor of whether or not Goldman Sachs did well. Until then, one can only speculate the outcome.