Twitter eyes reunion of Main St and Wall St

When Twitter executives kick-off a 10-day, cross-country tour of the US on Monday, they will try to convince the world’s largest money managers and hedge funds that the messaging platform can translate its success in transforming global communications into profits.

But the company’s $1.6bn initial public offering will also be a critical test of the US market’s ability to attract retail investors, who have remained reluctant to reinvest their savings in stocks since the financial crisis and have missed out on a recovery in share prices that has pushed the market to new highs.

The Twitter IPO is the most anticipated tech debut since Facebook’s $16bn listing last May. The New York Stock Exchange has even taken the unprecedented step of simulating the IPO over the weekend to ensure that the start of trading in Twitter’s shares would be smooth.

For the securities industry, it’s an event many hope will catalyse small investors’ return to the market.

Similar hopes backfired when shares in Facebook failed to “pop” on their opening day of trading and were further marred by systems problems on Nasdaq, where it listed. Instead of reviving interest in the market, the Facebook IPO became an example to some of why they should avoid equities altogether after underwriters raised the price and increased the size of the deal just days before it listed.

But since dropping more than half its value in its first few months, Facebook shares have recovered strongly and trade well above their offer price.

“I think with the Twitter IPO the timing is great,” says Rohit Raghubanshi Singh, a New York resident who invests as a hobby. “Retail investors that were burnt with the Facebook IPO are seeing Facebook rebound nicely. That’s bringing retail investors back, especially those that got in post-IPO.”

Another factor that could help entice investors is the performance of tech deals since Facebook. The 50 technology companies to list since Facebook are averaging first-day returns of 29 per cent and sit about 88 per cent higher than their offer price, according to Dealogic.

I think with the Twitter IPO the timing is great. Retail investors that were burnt with the Facebook IPO are seeing Facebook rebound nicely. That’s bringing retail investors back, especially those that got in post-IPO

- Rohit Raghubanshi Singh

Richard Cassedy, a retirement adviser in Tallahassee, Florida, says the average retail investor is still not in the market in a significant way. But the Twitter listing could be an opportunity for Wall Street to re-establish some credibility with main street.

“A majority of the stocks I put people into, they may have heard of but have no idea what they do,” he says. “Twitter is something everyone has heard of . . . They are very intrigued by the opportunity.”

Twitter says it expects to price its shares between $17 to $20, valuing the company’s equity at up to $13.9bn, but below the level it was trading at in private markets in recent months. Analysts and people familiar with the deal say the caution shows Twitter is keen not to repeat the mistakes of the Facebook offering.

William Mann of Virginia-based Motley Fool Asset Management, which offers mutual funds to retail investors, says: “I think that the Facebook offering probably gave people some pause, but I think people have short memories and at this point it has been a pretty successful investment.”

But he adds that there could be other reasons why Twitter might fall short of lofty hopes on its opening day. “When Facebook came to market, it was profitable where Twitter is not,” he says. “Twitter is coming out at [a price of] almost 20 times revenues. Even without a pop, that’s pretty rich.”