Twitter soars 73% in stock market debut

Alistair Barr | USA TODAY

Show Caption Hide Caption Twitter goes public on NYSE Twitter executives decided to let several of the social network's users ring the opening bell at the New York Stock Exchange instead of its founders and CEO.

Twitter shares close at %2444.90 on first day of trading on NYSE

Gains value the microblogging service at more than %2431 billion

Twitter%27s market value is now higher than LinkedIn

Investors bet on big profit margins%2C but some analysts warn of risks

SAN FRANCISCO — Twitter shares soared Thursday as investors scrambled to get a piece of what they hope will be the next blockbuster social-media company after Facebook.

Twitter and its bankers, led by Goldman Sachs' Anthony Noto, priced its IPO at $26 a share late Wednesday.

The shares opened at $45.10 on the New York Stock Exchange, under ticker TWTR. The stock climbed as high as $50.09 before closing at $44.90, up 73%. That values the company at more than $31 billion, which compares with Facebook's market capitalization of $120 billion and LinkedIn's $26 billion.

The gains highlight how euphoria is returning to the tech sector, fueled by optimism about the potential for social media to grab a big share of the booming online advertising business. Facebook and LinkedIn shares are up at least 80% so far in 2013.

"We're entering a pretty extended period of optimism," said Rick Summer, an equity analyst at Morningstar. "There is a lot of downside risk at these levels," he added, referring to Twitter's opening price.

Summer has a $26 fair value for the microblogging service, which assumes the company can attract a billion users in the next 10 years, up from about 230 million now, while improving its monetization of those users by 20% a year.

"Is it possible this won't materialize? Absolutely," Summer added. "Our downside fair value target is $15."

Brian Wieser, an analyst at Pivotal Research, downgraded Twitter shares to sell as they surged past his $30 price target.

Twitter CEO Dick Costolo told CNBC that the company is focused on making the service easier to use and highlighted its potential for big profit margins in the future.

"There is nothing structural about our business that prevents us from achieving the kinds of margins that are in our peer group," Costolo said during an interview at the NYSE.

Brian Nowak, an analyst at Susquehanna Financial Group, expects Twitter's EBITDA (earnings before interest, tax, depreciation and amortization) margin to reach 44% in 2017. That's still below Facebook's profit margins, which were 57% in 2012, the analyst noted.

Twitter co-founders Evan Williams, Jack Dorsey and Biz Stone were also present at the NYSE; however the company let Twitter users, including actor Patrick Stewart, ring the opening bell.

The Twitter IPO was heavily oversubscribed, which forced some investors to wait until the stock started trading today to buy it. That helped fuel big gains.

A successful IPO is supposed to climb on its first day. So far this year, the average one-day pop for U.S. listed technology or Internet IPOs is 35%, according to Dealogic.

Twitter share gains were also driven by optimism about the company's long-term opportunities. The service is already a global media phenomenon, but it has a lot fewer users than Facebook, and the company's business model — essentially, the way it makes money — is still in its infancy.

That leaves room for investors to imagine great improvements from Twitter and to buy its shares as they fly higher.

Mark Mahaney, a top-ranked Internet analyst at RBC Capital Markets, put a $33 price target on Twitter shares, and argued that the company may become as indispensable as other giants of the Web.

"Just as Google, Amazon and Facebook have become Internet utilities, so, too, may Twitter," Mahaney wrote in a note to investors. "Twitter is becoming an essential service for consumers, businesses, media companies and advertisers."

Twitter is also attractive because Facebook has proven that lots of money can be made from social networks through advertising, Mahaney said. Twitter's service is naturally suited to mobile devices and the special advertising that goes with those smaller screens, the analyst added.

Mobile was a major trend that Facebook had not yet cracked when that company tripped and fell onto public markets in a troubled IPO last year. On Facebook's first day of trading, the shares closed up less than 1%, then slumped in the weeks that followed.

Only when Facebook started generating serious revenue from mobile ads earlier this year did its shares recover strongly.