Twitter IPO – portent of a market top?

I’ve had half an eye on the Twitter IPO over the last month. The big ticket IPOs rarely interest me. They are generally too much of a coin flip. I didn’t care about Facebook, I was bored by Royal Mail’s market debut and as for Zynga – well anyone who plays Farmville deserves to be shot, in my opinion!

This is not to say money can’t be made out of these trades, but the action can be extremely volatile. The other two iconic web listings of the last few years have proven exactly this point. Even though they have both performed extremely well as of writing, both have been subjected to wild swings. Facebook (FB) got off to a decidedly dodgy start but is now $50.11, having listed at $38. LinkedIn (LNKD) also had a rough first year, but has fared even better than FB, closing yesterday at $224.54 compared to its listing price of $45. If you remember, on the day it came to market LNKD jumped 171% by the close.

So the returns are definitely there for the bold of heart and most spread betting companies, such as Galvan, are offering pre-IPO markets to spread betters.

But, given I am unlikely to trade Twitter, why am I writing about it today?

Well, that is a very good question!

It was actually a comment by our Editor, Zak Mir, which first piqued my interest at the latest Web 2.0 craze to hit the market. In one of his recent blogs he suggested the listings of Royal Mail and Twitter could be the sort of events which mark the beginning of a high point for stocks. Swept up in a tide of euphoria, after stunning gains over the last 12 months, unlisted high profile companies can seek to cash in on these optimal conditions.

In the case of Twitter it has just raised its listing price to between $23-25 – a whopping 25% uplift from the initial range as investors are apparently falling over themselves to get on board. In itself this might not seem too extravagant, especially when you consider that the company has elected not to increase the number of shares it is issuing, in the face of such heavy demand. In comparison, Facebook increased both its listing price and the number of shares it sold to the market when it joined the NASDAQ. Many believe this was a crucial factor behind the problems its share price ran into almost immediately after. It seems that the Twitter board of directors have learned from this mistake and are keen not to overcook their golden goose.

Even so, they are still valuing Twitter at $13.9billion.

As much as I am a massive fan of the Twitter service for stock research, this looks and feels on the high side to me. Will Twitter genuinely be able to monetise the huge volume of traffic it generates?

Of course, this is the $64,000 question for all web-listing, but I am more interested in what Twitter’s debut could tell us about the health of the wider market. The first test will come straight away in seeing how the market takes to this new offering. I wouldn’t be at all surprised to a big jump during the first day of trading. However, what comes next could prove to be more critical.

If Twitter is able to hold onto its gains, then a further broad based rally could be on the cards for stocks, as this would suggest there is enough speculative desire and money to drive prices higher. Equally though, if Twitter starts to fall (possibly even fall hard), this could suggest that the speculative game is up (for the time being at least). 

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