NEW YORK – Twitter Inc. surged 85 percent in its trading debut, as investors paid a premium for its promises of fast growth.
The shares rose as high as $48.15 and were trading at $47.10 as of 10:53 a.m. in New York. The company sold 70 million shares at $26 in its initial public offering yesterday, raising $1.82 billion.
The microblogging service picked a price that values it higher than rival Facebook Inc. and still drew more interest than anticipated. The San Francisco-based company, which is unprofitable and has one-fifth as many users as Facebook, is benefiting from investors’ thirst for companies that will grow quickly in expanding markets like mobile advertising.
“The company did everything to secure the most cash for itself while leaving some money for the IPO buyers,” said Josef Schuster, the founder of IPOX Schuster LLC, a Chicago-based manager of about $1.9 billion. “You need a pop at the opening to leave a good taste with everyone. They did a pretty good job managing the whole situation.”
At the IPO price Twitter is valued at $14.2 billion, or 12.4 times estimated 2014 sales of $1.14 billion, according to analyst projections compiled by Bloomberg. That compares with 11.6 times that Facebook was trading at yesterday and similar to LinkedIn Corp.’s multiple of 12.2 times sales.
The pricing puts the onus on Twitter to deliver on its promises of fast growth after earlier pitching shares as low as $17. CEO Dick Costolo has rallied investor interest in Twitter’s rapid sales curve – with revenue more than doubling annually – even with no clear path to making a profit.
The company received orders for about 30 times as many shares as it offered at the $26 IPO price, a person familiar with the matter said. About 8 million of the shares, or 11 percent of the total in the IPO, were allocated to retail investors, the person said, asking not to be named because the information is private. A typical retail allocation is 10 percent to 15 percent.
Still, any price over $40 reflects “hype” and makes Twitter too risky of an investment, said Jeffrey Sica, president and chief investment officer of Sica Wealth Management LLC in Morristown, N.J.