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GOING PUBLIC

Twitter Soars on IPO--But Now Real Work Begins

Twitter's stock jumps on its first day of trading, despite the start-up's lack of profits and questionable future. Now the pressure is on.

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New York was rainy and gray Thursday, save for one ray of light. That bright spot you saw came from Twitter, Wall Street's rising star.

The social media company debuted on the New York Stock Exchange this morning in one of the most hotly anticipated initial public offerings of the year.

Out of the gate, its stock nearly doubled to $50 a share, before settling at around $45, a 73 percent increase over the original share price. Twitter had repriced its shares to $26 on Wednesday. The original price range of $17 to $20 had given Twitter a market cap of about $11 billion on the high end.

Twitter's market cap is now around $25 billion, nearly eight times higher than tech stalwart AOL, and not that far from Yahoo's $33 billion valuation.

Twitter's soaring stock price is not surprising considering the hype its IPO has generated. But Twitter has never turned a profit, and now the pressure will be on for the company to rake it in.

"The market gives you a grace period, but that wears off and the market says you have to show us you can turn into a profitable business and increase the margins," says David Zilberman, a partner at venture capital firm Comcast Ventures in San Francisco.

That may prove a challenge going forward, because nearly 90 percent of Twitter's revenue comes from advertising. More than three quarters of its active monthly users reside outside the U.S., but those users contributed only one about a quarter of revenue, Twitter reported last month to the Securities and Exchange Commission.

In 2012, Twitter reported a net loss of $80 million, a decrease of nearly 40 percent from the prior year. For the six months ended June 30, Twitter reported a loss of $70 million, an increase of 41 percent, on top of a $418 million deficit, according to its filings with the SEC.

Still, the company has strong revenue growth. It had $317 million in revenue in 2012, nearly three times its 2011 revenue. For the six months ended June 30, 2013 Twitter reported $253 million in sales, about double its revenue compared to the same time period a year earlier.

Twitter's smooth IPO today stands in contrast to competitor Facebook, which stumbled out of the gate during its debut on the NASDAQ in 2012. Within a few months, its shares had dropped by 50 percent from its $38 a share pricing. (Facebook's stock has since recovered, trading at about $48.) Twitter and its lead underwriter Goldman Sachs took great pains not to duplicate Facebook's missteps, by listing on a different exchange, conducting a trading run-through the week before, and by pricing the shares conservatively.

Twitter sold 70 million shares Thursday, worth $3.1 billion.

IMAGE: Kevin Krejci/Flickr
Last updated: Nov 7, 2013

JEREMY QUITTNER is a staff writer for Inc. magazine and Inc.com. He previously covered technology for American Banker and entrepreneurship for BusinessWeek.
@JeremyQuittner




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