The Twitter IPO: Are We Partying Like It’s 1999?

Thursday, November 7, 2013 at 2pm
By John Friedman

Today, at roughly 9:45 a.m., I’m walking in Ess Eff Sea Eh on 2nd Street at Mission, heading towards Market, and my cool-car detector fires off, as I see a red Ferrari convertible going through the intersection, headed towards 1st Street.

This is the car:

Ferrari-California-side-convertible-top-down

 

That’s it, right down to the color of the interior (though that is not at all what the corner of Mission and 2nd Street looks like!).

Since it’s a convertible, and since the top is down, I can totally see the driver well and I can totally see what he’s doing and what he’s not doing. He’s a relatively young fellow — 35 at most I’d say, and these days that’s what I call “young” — and as he drives by, the dozens of us waiting for the light to change cannot help but see that he is looking down at his iPhone the whole time. The whole friggin’ time as he goes through the intersection and continues down towards the Bay, that’s what he’s doing: looking down, dum de dum de dum, not a present thought to the world in which he is physically present.

Texting while driving, I tsk-tsk to myself (yes, I know, he might not have been technically texting, but he most definitely was using/reading his iPhone with his hands, and looking down all the while). Thou shalt always be looking in the direction in which one is moving, I’m known to say, Lest one prove, anew and in a very unhappy way, Newton’s Third Law of Motion, whether it’s by playing rock-’em-sock-’em bumper cars or by cutting off your finger tip while intending to be cutting only veggies. So Friedman’s First Law of Safe Motion is to always be lookin’ where you’re aimin’ when you’re doin’ the movin’.

*  *  *

Twitter went public today. It IPO’ed, is the terminology, with IPO standing for Initial Public Offering, which means that, before today, not many people could own shares in Twitter and, after today, pretty much anyone who wants to own shares can. That’s what the P — P is for public — in the IPO abbreviation is all about. Now the whole public can own shares.

Twitter is very much a part of the San Francisco fabric these days, partially because it’s been located here from, as far as I know, the get-go (unlike Facebook, which started somewhere east of here and is located down in Peninsular Suburbia near the foot of a gosh-ugly bridge . . . ) and also because Twitter has led the charge to turn around the Mid-Market area of the little city by the big bay by moving into the old San Francisco Furniture Center building at 1355 Market Street.

Now lots of pundits this afternoon will be talking about the increase in the price of Twitter shares today, with the shares being sold to the public at $26 and first trades going at $45 and later trades going as high as $50. I’ll leave it to the valuation scolds to talk about why that high-$40s number is zany and risky on the one hand and, on the other hand, why it might double in no time at all . . . .

Instead, I’ll just look at today’s pricing a smidgen. Here’s today’s chart as of a few moments ago:
 

 

TWTR first day chart

The blue line and the shading beneath it represent the price per share — showing a range between $50 at the opening pop! (as they call it) trailing down to about $45 and change (as they also call it), and then drifting upwards to about $47/$48. All those people selling today bought shares at that $26 initial price or bought their shares before today at even lower prices, so those folks selling made a lot of money right there.

And then the blue vertical bars below the other part of the chart represent the number of shares changing hands throughout the day — with a ton of shares changing hands during the very early moments of the day and fewer and fewer shares changing hands as the day went on.

Each of those vertical bars on the left — the taller lines — represent about 3 million shares changing hands, so each of those lines represents about $150 million worth of transactions when the stock was trading at $50 ($3 million shares changing hands times $50 per share equals $150 million changing hands). If all those people selling those 3 million shares had bought those shares today at $26 and then sold at $50, they made $72 million in aggregate. Not bad for a day’s . . . er . . . whatever you wanna call it.

And you know what? Most of the people selling probably paid quite a bit less, so they made quite a bit more. Those are insiders selling to the public, most of whom probably paid less than, say, $3 for their shares, so they really did very well, thank you very much. And most only sold a part of what they had, so they still have plenty left to sell at $45 and change.

*  *  *

Some years ago some folks made noises about trying to fair-up the process through which companies go public. Google, when it first sold shares to the public, tried to do it differently and to make it more fair via something called a Dutch Auction. So did Peet’s.

But since then? Not so much.

These days you don’t hear much clamor for change. After Facebook’s truly disastrous first day of selling shares to the public, the bar which Twitter had to get over was pretty low: just don’t do what Facebook did.

As a result, today we find ourselves back at the good ol’ fashioned IPO, where the pop is huge, the public float is small, and truly stupendously large amounts of money rain down on a relatively small handful of folks — mostly insider employees and the Meg Whitmans of the world, all of whom bought-in at least several years and 90% ago, and not Normal Folks (NFs), all of whom are buying, if at all, at a price of $45 and change.

*  *  *

Some of those insiders upon whom that new wealth is raining down are hugely talented. After all, they have built this machine that connects people to each other in ways never before known (at least not in its 140-character limited form). Kudos to them and then kudos again.

Those insiders are also at least a big hunk o’ lucky, in the sense that they got on-board a rocket ship which pretty much from the get-go had escape velocity, so that, from that moment on, the main thing they had to do was hold on for dear life and not screw it up (eBay and Twitter both come to mind). Most businesses have to scratch and claw their way towards acquiring every customer; an extremely rare few acquire them by something closer to just having them walk in the front door.

Many of those insiders were smart enough to see the rocket ship and want to get on board as soon as they saw it; they saw the possibility, and they laser focused on it once they saw that possibility. For each of those people, though, there are probably five who saw a different rocket ship and made a decision to get on board the rocket ship they saw, only to then watch their particular rocket ship run out of fuel big time. Friendster and MySpace are the names usually trotted out as representative of this group. Zynga and Groupon too.

And then there’re the insiders from the Financial Services Industrial Complex, which I call the FSIC and which most folks, especially correctly in this context, call Wall Street. It takes about three minutes looking around in the John Friedman Financial Blog to know how I feel about those folks! They are not good for most people’s financial health. And when they are selling you something, watch out!

*  *  *

The inevitable question arises: Is all of this sustainable, or are we in a bubble? Have things gone too far, are prices too damn high, is it about to blow?

And will we look back at TWTR-IPO-Day as the peak, joining the recent bubble-popping infamy-date pantheon of 3/10/2000 (the popping of the Internet bubble) and 8/15/2008 (the popping of the real estate/liar-loan/etc. bubble)? Or are we just gettin’ goin’? Yeehah!

I dunno. The hardest things about discerning a bubble from a non-bubble are that (a) pundits and smart folks everywhere have predicted 100 out of the last two bubbles, and (b) a lot of times we are in an economic environment that seems quite bubble-icious and it lasts for years, during which many people do wonderfully well, so riddle me this: if you see a bubble correctly, but it takes five years to blow up, during which others make a ton of money and you lose a ton of money, were you right about seeing the bubble?

Hmmmm . . .

*  *  *

I recently wrote about home prices in parts of San Francisco being roughly 30% above where they were during the peak of the real estate bubble in 2006-2008, and how therein lies the rub. Bubble or no? Good or bad? Yes or no?

If you own your shelter, that’s a mostly wonderful thing, but if you don’t own but would like to, then it’s a terrible thing because, unless you make at least, say, $250k per year, and have at least $50k in cash to put down (though, actually, $600k of income and $400k of cash to put down really would be much, much better . . . ), then buying a home in SFCA is going to be a struggle and quite possibly a no-go. How’s about Tracey? Or how about Stockton and Vallejo! Prices are off quite in those broken cities.

Back here, though, having Twitter rain money down onto the Little City by the Big, Huge, Beautifully-Protected Bay, while a good thing overall — a very good thing — is not going to make living here more affordable (though many argue that allowing high-end condo projects along the sweet spot of the Embarcadero where tennis courts now lie would . . . .).

And that’s too bad because, when all around you all you see are rich people, life, in my opinion, tends to be more uniform, less interesting, less wonderful, less wondrous, less-SF’y, less boho, more staid, more proper, more Disneyfied-Manhattan, and less about the human spirit and more about things, as in: where have all the artists gone, and the young folks, and the rebels and the misfits, and the newly-arriveds and the adventurers, etc., etc., etc.

*  *  *

So are you curious about that beautiful red Ferrari? It’s called a Ferrari California, and it lists for about $200k.

You know what though? It only has a V8 engine. If you want a V12, then you’re looking at a Ferrari FF and that’s gonna cost you another $100k or so, or about two thousand newly-minted publicly-traded shares of TWTR stock. Hope you bought ’em before today!

 
 
 
Late-day postscript: roughly 110 million TWTR shares changed hands today. At an average price of $45.454545454545 per share, 110 million shares is worth a cool $5 billion.That’s real money changing real hands.

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