GWEN IFILL: Twitter’s little blue bird soared on its first day of flight into the public markets, but there are questions about what underlies that high stock value.
Hari Sreenivasan has the story.
(CHEERING AND APPLAUSE)
HARI SREENIVASAN: Opening with a hashtag ring, the New York Stock Exchange began trading Twitter stock just before 11:00 a.m. at more than $45 a share, or 73 percent above its asking price.
It was a long way away from March 21, 2006, when then-CEO Jack Dorsey posted the first tweet. The San Francisco startup has since grown. The micro-blogging site, where messages are limited to 140 characters, now has more than 230 million users around the world. Many use it as a news feed or to watch moments capturing international attention, including when President Obama tweeted out “Four more years” after being reelected. It was the most retweeted message of 2012.
The British monarchy used it to announced the birth of Prince George this summer.
DENNIS SMITH, Twitter user: I use Twitter just to catch up with events with the celebrities and hear what everybody is gossiping about and just to entertain myself, man, basically, nothing major.
HARI SREENIVASAN: While revenues continue to climb, the company has never turned a profit, and it lost $65 million in the last quarter alone.
Ahead of the IPO this morning, on CNBC, Twitter CEO Dick Costolo tried to reassure investors about the company’s prospects.
DICK COSTOLO, Twitter: We have an absolute perspective on the long-term kind of company we want to be, in service to being the public conversational real-time distributed platform.
HARI SREENIVASAN: One particular challenge ahead: While more than three-quarters of all of Twitter’s users live overseas, only 26 percent of its revenues currently come from abroad.
Some perspective on Twitter’s appeal and challenges ahead from two who know the tech and finance worlds well. Bill Hambrecht is a financier and investment banker with his own firm. He has helped launch a number of IPOs, including Google, Apple and Genentech, among others. And Alistair Barr, senior technology reporter for USA Today.
So, Alistair, let me start with you.
What fueled today’s demand?
ALISTAIR BARR, USA Today: There are really two things.
One is the fundamentals of a company off into the future. And then the other, which is probably more important today, was the supply and demand of the stock. There wasn’t a lot of stock available, and there was a lot of — a lot of demand from big institutional investors.
HARI SREENIVASAN: So, Mr. Hambrecht, I want to ask, who made money today? Of the 230 million users that I talked about, I would imagine that very few got in a share at $26.
BILL HAMBRECHT, W.R. Hambrecht & Co.: I think you are right.
The — the system of an IPO that — that basically calls it a public offering, it really isn’t. I mean, it was an offering to really a select group of institutions and some clients of the underwriters. But the public at large just really didn’t have any access to it at all.
HARI SREENIVASAN: So, Alistair Barr, where do the investors see the revenue potential? Where does Twitter say it’s going to make its money?
ALISTAIR BARR: Well, right now, it makes most of its money in the U.S., but most of its users, interestingly, are abroad, over 40 — over 70 percent of them, actually.
And so when Wall Street is in a good mood, they look at something like that and they say, well, there’s a great opportunity for future revenue growth. And so what Twitter really needs to do is take all those users overseas and start showing them ads in a much more efficient way and making — making a lot more revenue out of those.
Right now, most of the revenue is generated from a smaller number of users in the U.S.
HARI SREENIVASAN: So, Alistair, staying with you for a second, you have said also that there are quite a few challenges. It’s not even that easy to convince the existing user base on how to use the service. How do they do that overseas?
ALISTAIR BARR: Yes.
I mean, if I was — if I was trying to explain Twitter to my mother, it would probably be extremely difficult for her. And you see this in the comparison between Facebook and Twitter. Twitter has about 230 million users. Facebook has over a billion. And it’s — new users come to the Twitter site, it’s not immediately clear and easy how to use it or how relevant it’s going to be.
So one of the main things Twitter has to do is fix that and make it much easier for new users to come to the site and say, hey, that’s relevant to me.
HARI SREENIVASAN: So, Bill Hambrecht, if they’re facing some of these challenges, whether it’s usability or whether it’s that overseas market, are investors going to take some concern or pause for — take a little time-out here?
BILL HAMBRECHT: That’s going to be hard to guess.
You know, I think it’s very clear that Facebook — Facebook — Twitter has great respect, I think, in the — in the technology world. They have done a very good job of positioning themselves in the mobile market. Sure, they have a lot of international business, but that’s in the long run going to be a growth business for them.
And I think it’s a very well-respected company. And that’s why you see so much demand coming into the marketplace. Sooner or later, markets reflect a company’s standing within their industry. And I think Facebook is going to do just fine. I’m sorry.
BILL HAMBRECHT: I keep saying Facebook.
HARI SREENIVASAN: Well…
BILL HAMBRECHT: Twitter. Twitter will do just fine in the future.
HARI SREENIVASAN: Well, you know what? Since you are mentioning Facebook, it seems like they went out of their way to try to avoid the pitfalls Facebook had on its IPO. What did they learn?
BILL HAMBRECHT: Well, I think every company, and particularly Twitter, wanted to price their issue fairly, so that the buyers felt that they were dealt with fairly and that there would be a good after-market for the shares.
I would be very surprised if they expected as big a run-up as they got, because, you know, it’s clear that there is big demand. I mean, 117 million shares traded in the mid-$40s today, so there’s big demand for that stock. But I’m sure they wanted — they wanted everyone to feel good about buying it.
I think the problem, of course, is that the user base that really creates the value for a company like Twitter doesn’t have access to it. So if they come in to buy now, they have to pay, you know, the mid-$40s for the stock.
HARI SREENIVASAN: So, Alistair Barr, I want to ask, how does it differ fundamentally from the other social media platforms that exist today or perhaps even the public ones?
ALISTAIR BARR: Yes. I mean, the main two comparisons are Facebook and LinkedIn. And they’re really on other ends of the spectrum.
Facebook is friends keeping in touch with friends and relatives, and LinkedIn is a professional network where you keep in touch with people you work with. And Twitter kind of fits in into the middle, and it has much more of a real-time news aspect to it. So it’s basically about following your interests and basically keeping up with those interests in real time.
And that — that both has benefits and drawbacks as well. It means that from an advertising point of view, big — big brands like Coca-Cola and things like that, they can get involved in real-time conversations with people. And that’s one of those things that separates it from a Facebook, for instance.
HARI SREENIVASAN: So, Alistair, it also seems that young teenagers, for them, Twitter has already jumped the shark, so to speak. It’s already old news. They have moved on to other platforms. Is that the sign that perhaps that younger audience isn’t going to grow into this?
ALISTAIR BARR: Well, Twitter is actually working on some messaging, some development in its messaging area. You can — you can message people on the Twitter platform.
But that’s — that’s really the area where young people have gone now with apps like Snapchat and things like that, which are — which are getting quite high valuations as well. And there’s a lot of messaging going on there. And so Twitter will have to — it’s one of the challenges. Almost by definition, when — when a company like this goes public and gets institutional investors, it has to work very, very hard to stay on its toes and keep up with these hot new trends.
HARI SREENIVASAN: So, Bill Hambrecht, I also want to ask, is this almost kind of a Goldilocks IPO moment, in that it came at almost the right time? There seems to be significant demand in the market for people looking for those early stocks?
BILL HAMBRECHT: I think the IPO market, yes, has recovered. And Twitter came at a very good time.
I also think they did it right, you know, from the point of view of coming early. You know, they — they — their growth is accelerating in a lot of areas. True, they’re not profitable yet on a GAAP basis but they have got an established business model now that I think has the ability to perform very well for the new investors over the next few years.
So, I think, actually, they have planned it well. I wish they had used an auction, because I think that’s a much better way to price a deal. But I do think the company is in good shape to — to perform over the future.
HARI SREENIVASAN: All right.
Bill Hambrecht, Alistair Barr, thank you both for your time.
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