Category Archives: IPO

Are IPOs Worth Investing In? (Or, Things You Should Know About IPOs)

IPOs – otherwise known in long form as initial public offerings – have really hit the headlines in recent times. The ill fated Facebook launch is well known by many, along with the far more successful Twitter IPO of recent times. We’ve all heard stories of people getting in on these IPOs and sinking some cash into them when they go live. But is it really advisable to do this and are there really big profits to be made?

Rule #1: IPOs are not necessarily ‘hot’

Lots of people assume big profits can always be made from IPOs. Recently in the UK the Royal Mail launched its IPO, which saw the value of the business rise markedly in the first few days (hours, even) after its launch. This made huge profits for those lucky enough to have gotten a piece of this early action.

But for every story of this type there is a Facebook – an IPO that sees the launch price sink to lows that were previously only the stuff of nightmares. The rule here is to remember that initial public offerings tend to have quite a buzz around them, especially when the company or business in question is well known. Don’t assume the buzz is worthwhile and guarantees you a profit.

Rule #2: an IPO doesn’t always guarantee a strong financial footing

You’d be forgiven for thinking a company launching an IPO is in a great position financially. However this isn’t always the case. In fact there have been many examples (some quite well known, such as Pets.com for example) of businesses that failed after their IPO. Unfortunately some businesses seem to think an IPO will get them out of trouble, without thinking that the price can easily go down as well as up.

Rule #3: always do your research

If you are intent on getting involved in this type of investment, always always ALWAYS do your homework first. Don’t believe the headlines and the hype. You might do this and get lucky, getting in early and getting out with a good price for your investment, but you are much more likely not to be that lucky.

You can minimize the risk of losing money on this type of investment by looking into the information given in the prospectus, as well as doing your own research on the company. The more experience you have in this area the better, but we all have to start somewhere.

Of course, initial public offerings are always dicey affairs. You could be about to make the best investment of your life, or it might be the worst thing you ever do financially. You just never know. The main thing to remember is that you shouldn’t believe all the hype, because there tends to be a lot of it about. 2014 might be the year you make a fortune on a well chosen IPO. Similarly it could be the year you steer clear because you know they aren’t for you.

What Has Happened With Twitter’s Shares Since the Launch Date?

When Facebook launched their IPO it went through more than its share of teething troubles. Twitter took heed of those mistakes and was decidedly more cautious when it came to launching its own IPO.

So let’s take a look at what has happened since the all important first day of trading.

A high of $50.09

This was the top figure the share price managed to hit on the first day the shares were traded. The IPO price had been set at $26 per share, so this high point represented a figure that was almost double what it had been at its first valuation.

A healthy opening price

The opening price might have been lower than the high mentioned above, but it wasn’t far below it – not when you keep that $26 per share figure in mind. In actual fact it was $45.10, so things were certainly looking healthy.

And what about the closing price on day one?

This was slightly lower than the opening figure, at $44.90. However the picture was still a lot rosier than it had been for Facebook. Whether this remains the case for the long term has yet to be seen.

Where do the shares stand at the moment?

At the time of writing they were valued at $41.00 each. The share price has had its ups and downs over the short term of course, and this will only continue into the future. On the day of writing this, the share price had dropped slightly from the start of trading, before evening off at around $41.00 each.

A profit is yet to be made

This is perhaps the most important thing to remember about Twitter and its perceived value. We have seen internet companies dropping in value before, and while it is too early to say what will happen here, some have indicated that Twitter has many challenges to surpass before it can truly celebrate.

For example one report stated that every Twitter user was able to generate $1.16 for the company. This is a long way away from the $130 value put on each user by the share price as it stood earlier this month. Indeed it is not far from that same price now.

Twitter is looking at ways of monetising its website in order to bring in more revenue and hopefully transform several years of losses into a profit of sorts. It has yet to make a profit at all, although those in charge are investing in the future of the business instead of letting it sit idle and enjoying small profits.

We shall be watching closely to see what happens in the near future. One thing is certain though – the share price (whatever it may be) is only part of the equation. The future of Twitter and its shares largely depends on how well the company adapts to the challenge of becoming a real money maker. It may be some time before we have the answer to that particular question.

 

Opening Prices for Twitter Shares Announced

After months of speculation the prices have been set for the opening selection of Twitter shares. These have been announced as falling between $17 and $20 each.

Many experts have seen this as a smart and cautious move by the social networking site. They have seen the disaster that Facebook went through at its initial public offering, and they obviously want to avoid the same thing happening to them. We covered the cautionary tale aspect of this story a couple weeks back. Last week we also wrote about the potential short and long term aspects the shares in Twitter could present us with. Click back through those links now to read more about the frenzy that is building up over the shares, and where it could take us in the future.

What’s the initial value?

With the shares priced as indicated above, Twitter has a market value of around $11.1 billion dollars. However people who gamble on the price the shares could eventually reach have put a much higher price on it as a result. This is speculation of course but figures have gone as high as $30 billion dollars – and this is from the start.

This means shareholders could see their shares rise sharply in value on the first day of trading. If this were to happen it would stand in sharp contrast to what happened with the Facebook share debacle. This stands as an example of what NOT to do at a social media site IPO. Hopefully Twitter will perform far better and prove to be an example of perfect practice. We can but wait and see.

What will happen when the IPO finally takes place?

Rather than seeing the value of the shares drop like a stone, as they did with Facebook’s IPO, Twitter shares should start rising almost immediately. It will be interesting to see whether the projected value does turn out to be accurate.

However, the fact that those in charge of the IPO are playing things very cautiously bodes well for the eventual outcome. No one knows what the picture will look like several months down the line, but few expect the launch to be anything like the Facebook example.

Of course Facebook was not the only site that suffered. Groupon Inc also lost a significant amount of their estimated value due to overpriced shares, as did Zynga Inc. These cautionary tales have obviously been seen and noted by Twitter, and those in the driving seat do not want to go down the same path.

No one knows exactly what will happen until the IPO takes off, but all the signs are pointing towards a successful launch. Anyone with shares could expect to earn a significant amount from them, especially if the projected figures provided by the gamblers mentioned earlier are anywhere near accurate.

We’ll all be watching to see how high the share price could go – and how quickly it happens as well. Could this be the biggest social media success in history?

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What Will the Short and Long Term Outlook Be for Twitter Shares?

If you know anything at all about Twitter you’ll undoubtedly have heard about its forthcoming stock exchange debut. In fact if you read our blog post last week, concerning our thoughts of a cautionary tale in the making, you’ll already be up to speed. Its IPO is coming soon, although a firm date has yet to be formally announced. This coming weekend sees a dry run for the IPO, in the hopes that the problems Facebook suffered during its IPO can be averted in this case.

So the question this week is what is in store for Twitter – soon to be known as TWTR on the stock exchange – in the short and the long term? Will it follow the path of Facebook or is there more good news than bad to look forward to?

Short term thoughts

When Facebook went public its initial share price nosedived pretty quickly. It also suffered from technical mishaps (Nasdaq subsequently got a $10 million slap on the wrist for these).

The recently announced dry run should put paid to the latter happening for Twitter, but it remains to be seen how well (or not) the initial share price does when the initial public offering finally goes live. Facebook’s share price dropped like a stone until it bottomed out at $18 per share in August of the year it went live. Will the same happen to Twitter or will it do a lot better in those early days? We shall be watching to find out the answer.

Long term thoughts

Even though Facebook’s launch was little short of a disaster, there was a fairytale ending more than a year down the line. As things stand at the moment, the share price is much better at a little upwards of $55. Whatever Twitter’s IPO turns out to be, there is the potential for this to grow in the future just as Facebook has.

Of course the big question is really whether or not Twitter can grow in terms of profits. It has yet to monetize its site to see real profits emerge, but Facebook’s path to profit has been equally as murky. This aspect of the giants of social networking doesn’t seem as important as the outlook for the future. People are clearly thinking long term with regard to making a profit from these sites. Those who held onto the early Facebook shares will now be much better off, as the IPO launched at $38 per share.

All in all perhaps it comes down to who is brave enough to take a chance on Twitter. Learning from the mistakes of its predecessor will be important to be sure, but this is only half the story. Whether you will be investing in the social media giant or not, you will undoubtedly be watching to see how things progress when the IPO finally becomes reality. And judging by all the information coming through, this shouldn’t be too long at all.

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Will the Twitter IPO Turn Out to Be a Cautionary Tale?

The clock is ticking and the time is approaching when Twitter’s initial public offering finally goes live. Plenty of people will be eager to see what happens to the share price when Twitter goes public and is properly valued for the first time. And yet others will remember the Facebook debacle where the share price plunged almost immediately. Will the Twitter IPO go the same way?

Putting a value on a social media site

Twitter and Facebook are two very different sites, although they do share one main feature – both are social media sites. Twitter uses brevity to get its point across, the famous 140 character tweets being a staple of its appearance from the beginning. Facebook is a little more involved, with plenty of features in place and new ones appearing almost every day. Of course, many of those features have met with controversy – something Twitter has largely avoided for the time being at least.

But in November the two networks will share something else – the ability to trade shares. This is arguably the point at which Facebook started to hit some serious problems, so could the same be the case for Twitter? It would seem unlikely that the whole process would be smooth, although the powers that be at Twitter should have learned from the dramas that surrounded the Facebook IPO. It doesn’t mean they will be prevented from making many of the same mistakes, but you never know what might happen.

No profits yet

The main thing to remember if you are keen on getting involved and buying shares in Twitter is that this is a company without a profit. Much like Facebook, it is seeking to monetize its users and the many tweets that are sent and received every day. It has already managed to double its revenue on a yearly basis, so this is a good figure to encourage us to look ahead. What might happen in a year or two – or five – from now? Will those revenues still be doubling?

Essentially the idea of investing in Twitter is something of a gamble. Any purchase of shares is a gamble of sorts, but some are clearly more of a gamble than others. A company which has yet to turn a profit would seem to be in the riskier category, but it may also pay off with richer rewards in the long term.

It remains to be seen whether Twitter can avoid the fiasco that saw the value of Facebook’s shares nosedive early on. While many people will be watching to see how their shares perform, others will inevitably be waiting for disaster to strike. When it comes to IPOs for social media networks, this seems to be the way forward. Facebook was definitely a cautionary tale, so it will be interesting to see whether Twitter will learn from the mistakes and dramas that took place then. What do you think – will this be memorable for the right or wrong reasons?

Why Do Companies Have IPOs?

With all the talk of IPOs (Initial Public Offerings) in the news lately, you may be wondering why?  What makes a company actually want to go public?  It does require a lot more regulation and paperwork, and usually makes some costs rise.

However, there are many reasons why a company would want to go public, but the biggest is the need for capital.  Unlike when you buy a stock that trades on the stock market, when you buy a stock in an IPO, the money actually goes to the company.  Public offerings are the only time this happens.  There are other reasons though, and here they are.

Reasons Companies Go Public

 The main reasons companies go public include:

  • Raising the equity base
  • Enabling cheaper access to capital (this is usually compared to using debt)
  • Exposure, prestige, or public image
  • Getting liquid equity to current shareholders, employees, management (when you have a private company, it is very difficult to sell any shares you may own in the company)
  • Facilitating Acquisitions (Many companies use stock in acquiring other companies)
  • Creating other potential financing options
  • Increased liquidity
  • SEC requires it due to shareholder limit exceeded

While all of these touch on the subject, many companies go public because the original backers of the company need to get their return.  For Facebook, for example, the original venture firms that backed it need an IPO to sell their shares, and earn their return.

The Costs of Going Public

However, going public does have costs.  There is significant legal, accounting, and marketing costs associated with both going public, and ongoing filings.  There are the ongoing disclosures required by law, as well as the addition attention needed by management to spend on shareholder concerns.

Finally, there is going to be a public dissemination of information through all of these required filings that could be useful to competitors in the market.

So, while going public can be a good thing, there are costs that must be considered.

Image Source: finance.fortune.cnn.com

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