Twitter IPOs at $45.10 a Share

Twitter announced an initial public offering of its shares on Thursday, at $45.10. Twitter's stock had an offer price of $26. So its opening price represents a 73% increase of its offer price. Had Twitter priced its shares at $44.90, Thursday's closing price, they would have raised another $1.3 billion.

Analysts believe that bullish attitude on Twitter has more to do with market optimism rather than the actual value of Twitter's shares. As Roger McNamee, a Silicon Valley investor, puts it, "Everybody loves a lottery - especially a megabucks lottery," adding that it appears that everyone just seems to be looking at what the previous trade was and what the next trade is going to be. Other analysts have remarked that Twitter's initial price isn't too ridiculous - if the company can deliver on it from its growth over the next 5 years. Brian Wieser, a Pivotal Research analyst who had initially been bullish on the stock, says, "If you can get me to $6 billion of revenue in 2018, I can get to $45. But that's kind of hard." Wieser's estimates point to $4 billion of growth over the next 5 years, which led him to provide a "sell" recommendation within minutes of Thursday's IPO.

Value investors interested in long-term returns should be careful about Twitter's initial price. Twitter has been known for its slow growth prospects in the past, having struggled to raise enough revenue for the IPO. Analysts have likened Twitter to a bubble, suggesting that buying shares that are too overpriced, expecting them to become even further overpriced, is a key characteristic of a bubble. Especially considering the general bullish attitude of the market recently and the Fed's quantitative easing strategy keeping bond prices low, forcing investors to look for value in equities, there is some justification for Twitter's surprising opening. However, Twitter's long-term prospects are not quite so optimistic, and if Twitter is unlikely to meet its growth targets over the next five years, investors may be better suited to sell out of the company.

-Abhishek Parekh