Twitter and its IPO

Strong business model: all it needs is time

Despite concerns about its zero profitability, sluggish user growth, and a large number of fake and inactive accounts, Twitter (TWTR) has enjoyed a very nice ride thus far. Originally priced at $26 per share, its stock opened at $45.10 on the New York Stock Exchange on Thursday, November 7th before closing at $41.65 one day after its IPO — a 7.24% drop. At some point, the stock was traded as high as $50.09 which made Twitter one of the hottest tech companies to invest in this year.

However, a justification for its $19.82 billion market cap (as of 11/11) is still demanded by investors. Although sound, Twitter’s advertising model which delivers brand engagement — measured by total retweets, mentions, and responses — cannot guarantee its future stream of profits: the company has not made any money at all, sustaining a $133.9 million loss in the first nine months of 2013.

The fact that the market warmly welcomed Twitter speaks positively of investors’ beliefs in its ability to bring value to the table. However, a relatively sound advertising model, a strong mobile presence, and a talented workforce are not enough; Twitter has to be able to prove that it can mix all those ingredients into something numerically worthwhile.