At a starting price of $26 dollars a share, Twitter shares started trading this morning with the ticker symbol “TWTR.” The company has raised billions relative to its total market valuation which is at $18 billion. For reference, this is twice the valuation of aluminum company Alcoa. To celebrate the opening day of the stock, actor Patrick Stewart, always known as Star Trek’s Captain Picard, rang NYSE’s opening bell at 9:30am.
Twitter started trading and jumped up by 80 percent, while analysts recalled the boom days of the last technology bubble. CNBC’s Mad Money host, Jim Cramer, always fashionably bald and loudly famous, said that the company’s jump in valuation was “worrisome. It can’t be justified,” he tweeted.
After the last couple of bubbles destroyed value in our economy, bubble formation is something that the market is watching out for. According to the Huffington Post, the Dow Jones Industrial Average and Standard & Poor’s 500-stock index are at “record highs.” While some market pundits have claimed that QE was behind the equities surge, warnings are starting to appear that another bubble could be forming.
As Twitter’s price jumped by 80%, there is a possibility that the valuation was off. A large price increase or decrease usually indicates the investors are adding a premium or discount to future revenues or patents and other indicators that may add or detract from the company’s valuation. As the price strongly differs from the initial price, this could be an indication that “the company had underpriced its IPO, potentially missing out on billions of dollars it could have invested in its future growth.”
As Twitter conservatively priced its IPO, it is compared to Facebook, the social media giant, which had “technical glitches, and a dismal price performance on its first day in May 2012.”
Bloomberg reports that while Twitter is new and fun and a true celebrity home, “it has not yet figured out how to make any money.” The strong sales on its first trading day are a believable sign that “investors have faith in the company’s ability to find a way to turn its 200 million or so monthly active users, including Patrick Stewart, President Obama, and Pope Francis, into a profit. Along with Facebook and Twitter, the market valuations of other young social media companies like Pinterest and Snapchat have also been driven into the billions.”
Twitter is an online social networking and microblogging service. Users send or read tweets that are limited to 140 characters. Twitter is available through SMS, the web, and mobile platforms.