“Initial Public Offering”
Nov 8, 2013
Nov 8, 2013
Twitter IPO compared
Revenue before IPO vs Market Cap after Day#1
IPO: Aug 2004
Net loss: $100M
IPO: May 2012
Net income: $1B
IPO: Nov 2011
Net loss: $435M
(460M shares trading)
IPO: Nov 8,2013
Net loss: $79M
Twitter 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
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
Step 0 : SEC filings
Underwriters (banks, investors) that will take care of the IPO:
Goldman, Sachs & Co.
BofA Merrill Lynch
Deutsche Bank Securities
Allen & Company LLC
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 …
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 $xM to its bank account, but everyone
who already owns Twitter shares has their ownership in the company reduced
by the factor N / (N + M). Twitter needs to choose M first, because what x
should be depends on M: x needs to be a price that the public would be
willing to pay to own 1 / (N + M) of Twitter
– The stock market : Twitter chose NYSE (New York Stock Exchange) because
share discovery is done manually and not electronically like with NASDAQ. It
tends to give more control on the process
* Estimated value of the company before IPO, based on revenues
The steps to go IPO (1)
• Step 1: Decide number of share to offer
Twitter decides to offer 70 million shares on the public
market. This means that current shareholders of Twitter
have their stakes decreased by a factor of N/(N+M)=475 /
(475 + 70) = 13 percent, and that 13 percent of Twitter is up
for grabs. How does Twitter come up with this number? Its
executives know around how much money they want to
raise, and how much of their ownership they are willing to
Based on the number 70 million, Evan Williams knows right
now that after the IPO his stake in Twitter will decrease
from 12 percent to 10 percent, but in his mind he thinks
this sacrifice is well worth it (because the share value will
The steps to go IPO (2)
Step 2: advertise to institutional investors
• via its underwriting banks, in particular Goldman Sachs, Twitter advertises that 70
million shares are on the table, and invites them to submit requests for how many
shares they would like to buy (the investors have no official word on how much
they will have to pay per share, but they can do their own analyses to come up
with rough estimates).
• The rumor is around 17$, 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.
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. 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.
• Agricultural Bank of China US$22.1 billion
• Industrial and Commercial Bank of China US$21.9
• American International Assurance US$20.5 billion
• Visa Inc. US$19.7 billion (2008)
• General Motors US$18.15 billion (2010)
• Facebook, Inc. US$16 billion (2012)
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
A week after the IPO: $31.91, down 16 percent from
Current 52-week range: $18.87 to $54.83
Friday: $47.64, up 25.4 percent from IPO price
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
Current 52-week range: $94.75 to $257.56
Zynga Inc., developer of online games, first day of trading •
Friday: $214.99, more than four times the IPO price.
on Dec. 16, 2011
Pricing: $10 per share
Yelp Inc., online reviews site, first trading day on March 2,
First-day close: $9.50, down 5 percent from IPO price
A week after the IPO: $9.39, down 6.1 percent
Pricing: $15 per share
Current 52-week range: $2.09 to $4.05
First-day close: $24.58, up 64 percent from IPO price
Friday: $3.51, down 64.9 percent from IPO price.
A week after the IPO: $19.80, up 32 percent
Current 52-week range: $16.32 to $75.37
Groupon Inc., online deals company, first day of trading on •
Friday: $63.62, more than four times the IPO price.
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
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
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
• 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.
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 ou
plus par transactions
• Pour twitter, seuls les gros courtiers obtiendront des
stocks day#1 (> 1-2 Millions orders)
• Taxation: sociales (CSG, CRDS, etc, 15%) + impots sur
les revenues suivant tranches: au total min 21%, max