Twitter IPO“Initial Public Offering”

Nov 8, 2013

Marie-Paule Odini

Nov 8, 2013

Twitter IPO comparedRevenue before IPO vs Market Cap after Day#1

Market Cap:$24.47B

IPO: Nov 8,2013Revenues: $317MNet loss: $79M

IPO: May 2012Revenue: $3.7BNet income: $1B

Market Cap:$16B(460M shares trading)

Market Cap:$16.6B

IPO: Nov 2011Revenue: $735MNet loss: $435M

Market Cap:$23.1B

IPO: Aug 2004Revenue: $1.4BNet loss: $100M

twitterTwitter was created back in March 2006 but its popularity soon went through the roof with more than 500 million users registered

worldwide as of last year and more than 500 million tweets sent a day. Here is a list of interesting facts about what makes Twitter a global phenomenon:

• It took three years, two months and one day for the first billion Tweets to be sent on the platform. The same number are now sent every 48 hours.

• The hashtag feature, first proposed by a user, first appeared on Twitter in August 2007.

• There are more than 200 million monthly active users around the world, and around 10 million users in the UK alone.

• UK Twitter users are very mobile - 80 per cent of UK users are active on mobile, compared to 60 per cent globally.

• The re-tweet feature was launched in August 2009, more than three years after the platform was founded.

• 40 per cent of active users simply consume content on Twitter, rather than send tweets themselves.

• There are more than 400 million monthly unique visitors to twitter.com.

• Twitter supports more than 35 different languages.

• Twitter was localised in right-to-left languages Arabic, Farsi, Hebrew and Urdu, increasing the number of localised languages to 28, on March 6, 2012.

• 70 per cent of accounts are outside the United States.

• The most re-tweeted Tweet to date was President Barack Obama's message, "Four more years", after he won the US presidential election on November 6, 2012. It was re-tweeted more than 811,000 times.

• On March 25, 2012, James Cameron sent a Tweet from the ocean's deepest point, the Mariana Trench in the western Pacific.

• The first Tweet was sent in San Francisco, California, by Twitter creator Jack Dorsey on March 21, 2006.

• Pop star Justin Bieber has the most followers with around 44.5 million.

• Singer Adele is the Briton with the most followers, with more than 17.5 million.

• Twitter has 1,500 employees at its headquarters in San Francisco, while a further 2,000 work in offices around the world.

• 50 per cent of Twitter employees are engineers.

Twitter announces IPO

In a tweet , on Sept 12, 2013 , twitter announces that it has filed paperwork with the SEC, US institution that screens company financials before IPO.

Twitter has submitted secretly a 365 pages document.

On Sept 12, estimates are that the IPO would raise around $14B …

Step 0 : SEC filings

Underwriters (banks, investors) that will take care of the IPO:

Goldman, Sachs & Co.Morgan StanleyJ.P. MorganBofA Merrill LynchDeutsche Bank SecuritiesAllen & Company LLCCODE Advisors

http://www.sec.gov/Archives/edgar/data/1418091/000119312513390321/d564001ds1.htm

Twitter going IPO

• Before the IPO, Twitter is a private company. Ownership of Twitter is partitioned into N equal shares, and each of the people’s stake in the company is determined by how many of these shares he owns. For example, N is around 475 million for Twitter*. Twitter cofounder Evan Williams owns 57 million of these shares, so he owns 12 percent of Twitter. Other investors include individuals and some private investors.

• When they decide to go for IPO, They need to choose : – two numbers: the number of new shares of Twitter to issue; and the price at

which to sell these shares. If they decide to issue M new shares of Twitter and sell them for $x each, then Twitter adds $xM to its bank account, but everyone who already owns Twitter shares has their ownership in the company reduced by the factor N / (N + M). Twitter needs to choose M first, because what x should be depends on M: x needs to be a price that the public would be willing to pay to own 1 / (N + M) of Twitter

– The stock market : Twitter chose NYSE (New York Stock Exchange) because share discovery is done manually and not electronically like with NASDAQ. It tends to give more control on the process

* Estimated value of the company before IPO, based on revenues

The steps to go IPO (1)

• Step 1: Decide number of share to offerTwitter decides to offer 70 million shares on the public

market. This means that current shareholders of Twitter have their stakes decreased by a factor of N/(N+M)=475 / (475 + 70) = 13 percent, and that 13 percent of Twitter is up for grabs. How does Twitter come up with this number? Its executives know around how much money they want to raise, and how much of their ownership they are willing to give up.

Based on the number 70 million, Evan Williams knows right now that after the IPO his stake in Twitter will decrease from 12 percent to 10 percent, but in his mind he thinks this sacrifice is well worth it (because the share value will increase)

The steps to go IPO (2)

Step 2: advertise to institutional investors• via its underwriting banks, in particular Goldman Sachs, Twitter advertises that 70

million shares are on the table, and invites them to submit requests for how many shares they would like to buy (the investors have no official word on how much they will have to pay per share, but they can do their own analyses to come up with rough estimates).

• The rumor is around 17$, then 20$, 25$ and up …• This is the roadshow …

Who are these institutional investors? • They are the “important” clients of the underwriting banks: the top pension funds,

mutual funds, hedge funds, high net worth individuals, and long standing clients. Why do these investors get first dibs on an IPO? Retail investors often complain this is not fair, but the (official) reason is stability: the argument goes that institutional investors (who are accredited, sophisticated, more experienced, and who have deeper pockets and capacity to take risk) create stability in the stock price by being the first to receive them.

Steps to go IPO (3)

Step 3: Set a share price

• On November 6, 2013, 4:00pm: Twitter sets its IPO price at $26.

• 26$ is the price people would be willing to pay for twitter share

• Twitter knows that it will raise exactly $26 x 70 million = $1.8 billion in cash from this offering.

• this offering price values the company at $26 x (475 million + 70 million) = $14.2 billion

Steps to go IPO (4)

Step 4: distribute shares among institutional investors• On November 7, 2013, around 8:30am: The IPO

underwriters look at all the requests from (4) and decide how to allocate shares to the institutional investors. This is not as simple as giving each institutional investor what they requested if their conditions were met. First, the total number of shares requested by all institutional investors is likely much, much more than 70 million (and most institutional investors know that demand for shares greatly exceeds their supply, so they will tend to request a much higher number of shares than they actually want). Second, this is the only chance the offering company and the underwriters have to control what kind of shareholders have a stake in the company

Steps to go IPO (5)

Step 5: Day #1 trading• On November 7, 2013, at market open (9:30am): Orders start coming to the NYSE from all over the

world, from both retail investors and institutional investors (both the ones who were lucky enough to be part of the initial offering and the ones who were not). Each order is either a bid (“I want to buy TWTR”) or an offer (“I want to sell TWTR”), with the latter presumably only coming from those institutional investors who already have the stock to sell. Each order includes both a price and a size: for example, “I am willing to pay $45 per share for 100 shares of TWTR” or simply “45 x 100″.

• On November 7, 2013, after market open: The Designated Market Maker (DMM) for Twitter (which is the bank Barclays) at the NYSE starts collecting all of the orders that are coming in. Taking a quick first look at the numbers they are seeing, Barclays reports that the prevailing price seems to be in the $40 to $45 range. This number is reported by the news media.

• On November 7, 2013, after market open: The DMM (Barclays) works on setting the opening price. The opening price is chosen so that supply and demand are balanced as well as possible. In other words, the opening price is the price that maximizes the number of trades that can be executed, based on all of the orders submitted thus far. This process is called price discovery, and is handled by humans at the NYSE (unlike Nasdaq, which handles price discovery electronically). Once the opening price is decided upon (for Twitter, $45.10), the DMM “freezes the book”, or blocks any new orders from coming in. Next, the DMM enters all of the accepted orders into the system, matching buyers and sellers based on the prices and sizes they submitted. The process of price discovery usually takes around fifteen minutes for the NYSE, but since Twitter is such a high profile stock with a great deal of anticipation and demand, the process takes over an hour.

• On November 7, 2013, at 10:50am: Twitter begins trading at $45.10

Steps to go IPO (6)

Step 6: IPO Day closing • On November 7, 2013, at market close (4:00pm):

Twitter closes at $44.90.• The company is valued $44.90 x (475 million + 70

million) = $24.47 billion• It has raised 70Mx26$ = $1.8B in cash to invest• Note: the key underwriters (stablelizers) have

sold an additional 10M shares, known as the greenshoe that they will either buy back to the market if the stock drops or buy back to twitter. http://blogs.wsj.com/moneybeat/2013/10/25/for-twitter-ipo-obsessives-a-qa-on-the-greenshoe/

Source: http://www.forbes.com/sites/quora/2013/11/08/how-does-ipo-pricing-work/

Shall I buy twitter stocks?

Twitter stock

Source: Yahoo finance

Twitter vs competitors

IPO - wikipedia

• An initial public offering (IPO) or stock market launch is a type of public offering where shares of stock in a company are sold to the general public, on a securities exchange, for the first time. Through this process, a private company transforms into a public company. Initial public offerings are used by companies to raise expansion capital, to possibly monetize the investments of early private investors, and to become publicly traded enterprises. A company selling shares is never required to repay the capital to its public investors. After the IPO, when shares trade freely in the open market, money passes between public investors. Although an IPO offers many advantages, there are also significant disadvantages. Chief among these are the costs associated with the process, and the requirement to disclose certain information that could prove helpful to competitors, or create difficulties with vendors. Details of the proposed offering are disclosed to potential purchasers in the form of a lengthy document known as a prospectus. Most companies undertaking an IPO do so with the assistance of an investment banking firm acting in the capacity of anunderwriter. Underwriters provide several services, including help with correctly assessing the value of shares (share price), and establishing a public market for shares (initial sale). Alternative methods such as the dutch auction have also been explored. In terms of size and public participation, the most notable example of this method is the Google IPO.[1] China has recently emerged as a major IPO market, with several of the largest IPOs taking place in that country.

• Prior to 2009, the United States was the leading issuer of IPOs in terms of total value. Since that time, however, China (Shanghai, Shenzhen and Hong Kong) has been the leading issuer, raising $73 billion (almost double the amount of money raised on the New York Stock Exchange and NASDAQ combined) up to the end of November 2011. The Hong Kong Stock Exchange raised 30.9 billion in 2011 as the top course for the third year in a row, while New York raised 30.7 billion.[29]

Largest IPO

• Agricultural Bank of China US$22.1 billion (2010)[23]

• Industrial and Commercial Bank of China US$21.9 billion (2006)[24]

• American International Assurance US$20.5 billion (2010)[25]

• Visa Inc. US$19.7 billion (2008)[26]

• General Motors US$18.15 billion (2010)[27]

• Facebook, Inc. US$16 billion (2012)[28]

Twitter investors

Comparing with other IPO stock

Facebook Inc., the world’s largest social network, first day of trading on May 18, 2012

• Pricing: $38 per share• First-day close: $38.23, up less than 1 percent from

IPO price• A week after the IPO: $31.91, down 16 percent from

IPO price• Current 52-week range: $18.87 to $54.83• Friday: $47.64, up 25.4 percent from IPO price

Zynga Inc., developer of online games, first day of trading on Dec. 16, 2011

• Pricing: $10 per share• First-day close: $9.50, down 5 percent from IPO price• A week after the IPO: $9.39, down 6.1 percent• Current 52-week range: $2.09 to $4.05• Friday: $3.51, down 64.9 percent from IPO price.

Groupon Inc., online deals company, first day of trading on Nov. 4, 2012

• Pricing: $20 per share• First-day close: $26.11, up 31 percent from IPO price• A week after the IPO: $24.25, up 21.2 percent

• Current 52-week range: $2.60 to $12.76• Friday: $10.20, down 49 percent from IPO price.

LinkedIn Corp., online professional network, first day of trading on May 19, 2011

• Pricing: $45 per share• First-day close: $94.25, more than double IPO price• A week after the IPO: $86.37, up 91.9 percent from

IPO price• Current 52-week range: $94.75 to $257.56• Friday: $214.99, more than four times the IPO price.

Yelp Inc., online reviews site, first trading day on March 2, 2012

• Pricing: $15 per share• First-day close: $24.58, up 64 percent from IPO price• A week after the IPO: $19.80, up 32 percent• Current 52-week range: $16.32 to $75.37• Friday: $63.62, more than four times the IPO price.

Largest IPO (1)

The Agricultural Bank of China (ABC) • The massive IPOs for two of China's biggest banks -- the Bank of China and the

Industrial and Commercial Bank of China -- proved that the growth of the Chinese economy was no fluke. But who would've thought that yet another bank offering would trump both?

• The Agricultural Bank of China (ABC) started off humbly, founded by Mao Zedong as a resource for rural farmers, but it hit the big time on July 6, 2010, raising $19.2 billion in a single day to become the biggest initial public offering in history. By the end of the day's trading, the once-humble bank was worth about $128 billion –more than Citigroup and Goldman Sachs [source: Wines].

• ABC was the last of China's four largest banks (the last being the China Construction Bank) to go public. Although the initial stock offering took a bit of a hit due to concerns about the durability of China's economy and a slew of Chinese bank bailouts, ABC's triumph continued China's hot streak in the IPO world. According to The New York Times, more than one-third of the new IPOs came from Chinese companies -- a significant increase from the quarter that that came from the country the previous year. What does this mean for China? It's still too early to tell, but it's worth noting that both Morgan Stanley and Goldman Sachs have bet big on the Chinese bank

Largest IPO (2)

AT&T Wireless, the mobile division of American telecommunications monolith AT&T

just barely squeaked in its IPO before the dot-com bubble burst. The stock market began to slide in mid-March 2000, and AT&T Wireless released its initial public offering on April 26. Other tech companies withdrew their IPOs, but AT&T gambled and went ahead with its offering. It paid off.

• The wireless division's affiliation with its well-known parent certainly didn't hurt its prospects. When trading began on the NYSE, AT&T Wireless released 360 million shares. Investors fell in step with underwriters' valuation of the stock, with shares opening at $30.12 and closing at $31.75; its pre-offer value was $29.50 [source: Portnoy and Jastrow].

• By the time the bell rung to close the day on the exchange, AT&T Wireless had raked in $10.62 billion in new capital [source:BusinessWeek]. It set the record for the largest IPO in American history, a title the company would hold for six years.

Largest IPO (2)

The Bank of China (BOC) was a state-owned bank until it was spun off into a publicly traded

private lender during its IPO on May 23, 2006. The one-day total for purchases for shares ahead of the listing on the Hong Kong exchange the following week -- attracting everyone from the bank's everyday account holders to European banks like Royal Bank of Scotland -- topped $9.7 billion [source: Lague]. When the final tallies were in, the BOC raked in a whopping $11.1 billion during its IPO [source: BusinessWeek].

• The bank issued 25.57 billion shares, comprising just 10.5 percent of the BOC, at the equivalent of about 38 cents apiece [source: Lague]. The shares sold rapidly, despite reports of 75 cases of fraud and corruption among the bank's leaders the year before. All told, Bank of China's IPO was the biggest offering in six years.

Largest IPO (2)

• NTT Mobile Communications• a giant in Japanese wireless phones, went public on the Nikkei 225

average on Oct. 12, 1998, the Asian market was dull. The offering of stock in the company managed to bring the market back to life, however. Ten days after NTT Mobile's IPO, the Nikkei average had added 1,300 points to its 14,295 total in just a five-day span [source: WSJ]. While other Asian markets were embattled, the IPO kept the Nikkei chugging along.

• The initial pre-offering value for shares in the company was 3.9 million yen; by the end of the day, they had risen to a close of 4.65 million yen. By the time the bell had rung to end the day on the Nikkei, NTT Mobile had amassed $18.4 billion in capital -- in one day. It was the largest IPO in world history [source: NYSE].

• Not a bad stock to purchase considering just over a decade earlier NTT Mobile's parent company, Nippon Telegraph and Telephone, had managed to raise more than $13 billion during its own IPO in 1986.

Google IPO

Google stock

Stock price: 1016.03Employees: 46,421Market Capitalization: 339.44B

Revenues: 57.39BProfits (EBITDA): 17.60BTotal Cash: 54.74B

Source: Yahoo Finance, Nov 8 - 2013

2013 update

SEC fillings

• Twitter SEC fillings :

• Facebook SEC fillings: Feb 2012– http://www.nasdaq.com/markets/ipos/filing.ashx?fili

ngid=7995138

• Google SEC fillings: – http://www.sec.gov/Archives/edgar/data/1288776/00

0119312504142742/ds1a.htm

• Groupon SEC fillings: June 2011– http://www.sec.gov/Archives/edgar/data/1490281/00

0104746911005613/a2203913zs-1.htm

How to buy twitter stocks?

• En France, passer par un courtier (ex: Boursorama, ING, Saxo Banque, Bourse Direct, Binck Bank, Fortuneo, BforBank…). Ouvrir un compte et frais de 5 euros ouplus par transactions– http://www.francetransactions.com/bourse-

sicav/comparateur-frais-courtage.html

• Pour twitter, seuls les gros courtiers obtiendront des stocks day#1 (> 1-2 Millions orders)

• Taxation: sociales (CSG, CRDS, etc, 15%) + impots surles revenues suivant tranches: au total min 21%, max 60-70% …