The initial public offering (IPO) of Twitter (NYSE:TWTR) is a runaway success on Thursday. The stock price of the popular micro blogging site reached as much as $50 per share, and ended its first trading session 73% higher to $44.90 per share from its offering price of $26 per share.
Twitter’s stock opened at $45.10 per share at the New York Stock Exchange (NYSE) and traded smoothly until the closing of the market. The company’s valuation was $31 billion, significantly higher than the previous implied valuation at around $18 billion based on its offering price.
The Financial Times quoted a statement from Professor Jay Ritter, finance professor at the University of Florida who suggested that Twitter could have raised additional $1.3 billion if it set its offering price in the range of its closing price today. He said, “They left more money on the table than all but three IPOs in US history. Could Twitter have used another $1bn on its balance sheet? Certainly.”
On the other hand, Brian Wieser, analyst at Pivotal Research issued a sell rating on the stock. He has been bullish on Twitter, but he argued that the stock was “too expensive.” He noted that its valuation at $30 billion is almost equal to well established media companies such as CBS and Publicis Omnicom Group.
Saxo Bank’s head of equity strategy, Peter Garnry shared the same view and commented that Twitter’s valuation was “ridiculous” and presents a “huge downside risk” for investors it fails to meet expectations.
During an interview with CNBC, Dick Costolo, chief executive officer of Twitter emphasized that the company is focused on improving its service. He is also confident that the company will generate higher margins in the future.
Costolo said, “There is nothing structural about our business that prevents us from achieving the kinds of margins that are in our peer group.”