Twitter shares make smooth market debut

Traders on the floor of the New York Stock Exchange called out orders for shares of Twitter for the first time on Thursday morning, as one of Wall Street's traditional rituals thrust the young social media company into the public markets.

On its inaugural day of trading, Twitter managed to avoid the missteps that marred Facebook's initial public offering last year, even as Twitter's lofty stock market valuation added pressure on the company to turn a profit soon.

After pricing its shares conservatively on Wednesday night at $26 apiece, Twitter's stock eventually began trading at $45.10 at around 10:30 a.m. In its first hours on the market, the stock - trading under the ticker TWTR - moved as high as $50.09 before settling around $46 by mid-afternoon. Twitter closed at $44.90 a share, 73 per cent above its I.P.O. price, but slightly below the day's opening price of $45.10.

But despite a smooth start to trading, Twitter is sure to face continued scrutiny as it works to justify a valuation of more than $30 billion to investors sensitive to the nuances of quarterly earnings reports.

"This is a giant poker game," said Lawrence Leibowitz, chief operating officer of NYSE Euronext, as traders and bankers set the opening price in the minutes before Twitter's stock began trading. "It will be a bit volatile, but it's a very exciting deal."

Twitter executives entered the New York Stock Exchange building in lower Manhattan on Thursday morning as a light rain fell, and the usual mix of tourists and financial workers mingled outside, some snapping photos of the giant Twitter banner draped over the building's neo-Classical facade.

Inside, the floor of the exchange was unusually busy. An hour and a half before the opening bell, traders had staked out positions and a gaggle of press members had assembled under the bell podium. Twitter's bird logo was emblazoned on screens and posters throughout the exchange, and plastered on the hardwood floors.

The first surprise of the morning came as Twitter's entourage - led by the company's chief executive, Dick Costolo, the chief financial officer, Mike Gupta, the co-founders, Jack Dorsey, Evan Williams and Biz Stone, and the lead Goldman Sachs banker on the offering, Anthony Noto - appeared not on the bell podium, but on the trading floor below.

Ringing the bell in their place was an eclectic selection of Twitter users: the actor Patrick Stewart, a nine-year-old who opened a lemonade stand to raise money to end child slavery, and the social media manager for the Boston Police Department.

In an interview after the bell ringing, Mr. Stewart confessed he had been using Twitter only for a year, and did not intend to buy the stock.

"I'm not a financial person at all and nobody should take my word as a good reason for investing in anything," he said. "But it is a brilliant organization, and the impact it has worldwide is so extraordinary, and furthermore, it's free."

Even after other stocks on the Big Board began trading, however, Twitter shares were held back for more than an hour as the so-called "price discovery process" got under way.

The process, unique to the N.Y.S.E., allows an experienced market maker to gauge demand from both buyers and sellers, who shouted out tentative orders in a crush of traders in the middle of the exchange floor.

The aim was to zero in on a final opening price, reducing the sort of volatility that hampered Facebook's debut on the Nasdaq. Twitter's designated market maker was Barclays, and for more than an hour a representative from the bank set a number of price ranges, as low as $40 a share and as high as $47.

During this time, institutional investors who had placed orders with Twitter's underwriters were being notified what allocations they received. In some cases, they may have been allocated less than they requested, while others may have received their full allocation. Those who did not receive the full amount they wanted placed new orders, driving the price up.

NYSE Euronext officials balanced confidence and a bit of trepidation as the price discovery process dragged on longer than usual.

"You don't want to be complacent, but I don't want everyone nervous that this is something we've never done before," said Duncan L. Niederauer, NYSE Euronext chief executive. "We take a sense of pride but also feel some pressure that it's up to us to execute."

After more than an hour of price discovery, Twitter stock finally began trading at $45.10.

Though somewhat arcane in the era of high frequency trading, the N.Y.S.E.'s price discovery process is one of the features that distinguish it from crosstown rival Nasdaq, a purely electronic exchange.

"It's great we have the human element to control it rather than the computer system at Nasdaq," said Ryan O'Day of Rosenblatt Securities.

The offering was a significant victory for NYSE Euronext in its long-running competition with Nasdaq for premiere stock listings. The N.Y.S.E. has regularly attracted more total listings than Nasdaq, but Nasdaq has been more popular, and has long been identified with technology companies. Facebook, Google, Apple and Microsoft all trade on Nasdaq.

But this year, for the first time ever, N.Y.S.E. has drawn a majority of technology listings, according to data from Thomson Reuters. After Thursday, the exchange was responsible for over 70 per cent of the money raised by technology companies.

Nasdaq has been losing clout in the start-up world in part because of a series of technology glitches. The most famous was Facebook's scrambled I.P.O., which turned a celebratory day sour and led to tens of millions of dollars in losses. More recently, in August, a computer problem shut down trading in all Nasdaq stocks. That came shortly before Twitter chose the N.Y.S.E. over Nasdaq.

The New York exchange went to great lengths to ensure that it did not suffer a similar fate when the deluge of orders for Twitter came in. It held a trial I.P.O. on a Saturday morning in October, and strenuously reviewed its systems.

The offering comes at a turning point for the exchange, just before the completion of its sale to the InterContinental Exchange. That deal is expected to receive final regulatory approval as soon as next week. The new owners are advocates of electronic trading and have faced questions about whether they will keep the famous trading floor.

Despite the long price discovery process, traders on the floor applauded the smooth start to trading.

"The auctioning process really worked here today," said Mark Otto, managing director for J. Streicher. "They took their time to make sure that the price was right. They gave all participants the opportunity to really react to the ranges that were sent out."

Mr. Noto, the Goldman banker who led the I.P.O., expressed relief once trading was under way with a tweet that read simply, "Phew!"

But some stock analysts were already cautioning that Twitter was overpriced. Soon after the stock began trading, Brian Wieser of Pivotal Research, who had a price target of $30 on Twitter before the shares began trading, downgraded the stock to a "sell."

"With a price that pushes into the high 30s and beyond, Twitter is simply too expensive," he wrote in a client note. To justify the opening price of $45.10, Mr. Wieser said Twitter would have to report more than $6 billion in annual sales by 2018, compared with the roughly $600 million it expects this year.

N.Y.S.E. executives said that so long as shares didn't fall below the price of the first trade, the day would be viewed as a success. "Everyone will be really happy as long as it closes above the open," Mr. Leibowitz said. By that small measure, the I.P.O. didn't succeed, as shares closed just below the price of the first trade.

But by raising billions of dollars for the company and pulling off a relatively smooth first day of trading, Twitter, its bankers and its exchange have little to complain about.

After the stock had been trading for some time, Twitter's team assembled outside the N.Y.S.E., braving a pelting rain to have their picture taken in front of the exchange.

"It's a proud day for the company," said Mr. Costolo, the chief executive. "But we have a lot of work ahead of us."

© 2013, The New York Times News Service