What is the Twitter IPO?
An IPO is an Initial Public Offering. It’s the first sale of stock by a private company to the public—that’s why it’s also called taking a company public. IPOs are often issued by smaller, younger companies who are seeking capital to grow, but that’s not always the case, like with Twitter’s much-anticipated IPO.
Twitter’s plan to sell 70 million shares will be the biggest technology IPO since Facebook went public last year. In a regulatory filing, Twitter set a price range of $17 to $20 per share for its offering. At the $20 share price, Twitter would be valued at over $12 billion. The company is expected to set the price on Wednesday and begin trading Thursday morning.
So can the everyday investor get in on the Twitter IPO?
Yes and no. It’s historically been difficult for retail investors to participate in an IPO, because one immediate goal of the IPO is to raise money from institutional investors, known as underwriters. You typically need to be a frequently trading client with a large account with one of the underwriters to buy in on a hot IPO. And Twitter is about as hot as it gets: It’s a hot stock in the hot social-media sector of the hot tech market.
Why would a casual retail investor want to buy an IPO and should they?
Well, the answer to the “why” question would be to get in on the ground floor right?
Yes, that’s what everyone says! But that’s a common misperception. The truth is that by the time a company goes public, people aren’t buying in on the ground floor—they’re buying in on about the fourth or fifth floor. This isn’t to say a company’s opening stock price can’t be a great investment—the fourth floor of the Sears’s tower has a lot of upside potential—but be aware that there have likely been several rounds of private investment that came before you.
My first word of warning would be when investing, don’t ever let your answer to “why” be “to make quick money.” Media hype can fuel investors’ unrealistic expectations. Don’t believe the hype! Buying an individual stock hoping it’s a winning lottery ticket is NOT a recipe for success. You should buy stock in an individual company only if you understand the company and have confidence in its long-term prospects. And I hate to say it, but having a Twitter account doesn’t make someone an expert in technology nor investing.