Twitter Inc. fell 7.2%, erasing some of the euphoria that caused shares of the short- messaging site to almost double at their market debut.
Twitter, which raised $2.09 billion in its initial public offering this week, declined to $41.65 at the close in New York from Friday’s $44.90. Friday marked the company’s first full day of trading after setting an IPO price of $26.
The San Francisco-based company spent the last two weeks pitching investors on the stock’s potential for growth, as it seeks ways to generating more advertising to its 230 million users. Friday’s closing price valued Twitter at 22 times estimated 2014 sales, more expensive than Facebook Inc., which traded at 11.2 times sales. It was the largest technology IPO since Facebook debuted last year.
The market still has to settle in, said Brian Wieser, an analyst at Pivotal Research Group LLC in New York who has a sell rating on Twitter. It was obviously a very successful IPO, but over time people are going to be looking at valuations, and those assessments will increasingly weigh on minds.
The IPO, led by Goldman Sachs Group Inc., valued Twitter at $14.2 billion. After retreating from the 73% rally on the first partial trading day, the company now has a market capitalization of $23.6 billion. Twitter, while unprofitable, is benefiting from investors’ thirst for companies that will grow quickly in expanding markets like mobile advertising. Twitter draws 70% of revenue from mobile advertising, compared with about half for Facebook.
Twitter raised more than the $1.9 billion Google Inc. did in its 2004 debut. Twitter’s debut rally was the biggest one-day pop for an IPO that raised more than $1 billion since Alibaba.com Ltd. debuted in 2007, according to data compiled by Bloomberg.
The microblogging service will have to maintain the level of its stock to erase the aftertaste of the Facebook, Zynga Inc. and Groupon Inc. IPOs, each of which lost half their value within six months of their debuts, sending a chill over consumer-technology IPOs and some Silicon Valley startup valuations.
Twitter has yet to prove its business model. While revenue more than doubled annually, to $534.4 million in the 12 months through 30 September, user growth is slowing and becoming more costly, filings show. Most of the opportunity may be outside the US, where Twitter had 77% of its users but only 26% of its revenue in the third quarter. BLOOMBERG