News / Science & Technology

Twitter to Offer Its Stock for Public Sale

Dick Costolo (L), chief executive of Twitter, and the company's chief financial officer Mike Gupta leave JP Morgan headquarters after a meeting before the firm's IPO in New York, Oct. 25, 2013.
Dick Costolo (L), chief executive of Twitter, and the company's chief financial officer Mike Gupta leave JP Morgan headquarters after a meeting before the firm's IPO in New York, Oct. 25, 2013.
VOA News
More than 230 million people worldwide post short Internet messages about their lives on Twitter. Now, starting Thursday, the financial world will decide just how valuable the social media site is, as investors get their first chance to buy stock in the company.

In the jargon of financial markets across the globe, Twitter is making an IPO, which means an "initial public offering" of ownership shares in the company. The founder of the Renaissance Capital research and investment company, Kathy Smith, told VOA that privately-owned companies offer their shares for sale to the public to raise the money they need to expand their business operations.

She said new stock offerings also help determine the monetary value of a company.

"It's the first time a private company offers shares in the publicly traded markets," she said. "So the company might offer a portion of its value to public investors and the shares will then trade. There are enough investors, so there's a tradeable market and that market even for a piece of the company, maybe let's say it's 20-30 percent, then creates some recognition of the value of the company."

Advertising

On Twitter, users like to be able to post very brief messages to friends and business associates. But Smith says investors are looking at how successful Twitter might become because of its growing advertising revenue.

"Twitter has a lot of interest because of how quickly the company in about a seven-year period has generated about $800 million in [annual] revenue and is growing very quickly," said Smith.

Twitter is selling more than 80 million shares in the company and could raise $2 billion. The company says that on Wednesday it will set the first-time share price at somewhere between $23-$25.

Whether Twitter will turn out to be profitable as an investment is anyone's guess. More than a year ago, another popular U.S.-based social media site, Facebook, made its debut as a publicly traded stock and within weeks lost half its value.  Facebook has since recovered and now is trading about 30 percent higher than when it started.

Investment opportunity

Smith says that just because Twitter is well known does not necessarily mean it will prove to be a good investment, but thinks eventually it will.

"There is some theory that a well-known company that users value is probably worth looking at," said Smith. "Then the question becomes, at what price? And in the case of Twitter, there's an awful lot of interest and maybe a little bit too much excitement around the IPO. That may make it expensive when it first starts trading. But ... we believe it will be a company that some point in time investors will want to put in their portfolio."

With the U.S. economy, the world's largest, slowly, but steadily improving, numerous private companies are making first-time stock offers. In the coming days, Smith said online textbook rental company Chegg, hotel chain Extended Stay America and book publisher Houghton Mifflin Harcourt are also joining the world of publicly traded companies.

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