Last week, Jack Dorsey, the relatively new Twitter CEO, did what everybody thought was impossible. Wall Street was in absolute awe when his company, Square, opened up well below their target ($9 instead of the expected $11 or even wished for $13), yet managed to rise by 45% on its very first trading day. The shares closed at $13.07, just above the level they had hoped for.
This is an incredibly rare occurrence. In fact, it hasn’t been seen in 17 years. The last time it happened was at the height of the dot-com bubble. TheGlobe.com’s IPO was able to set a brand new record, holding the largest ever first day gain in the history of this country despite pricing below it’s target range. The record set by TheGlobe.com still stands today, even after Twitter’s impressive move.
TheGlobe.com’s stock price was $11 to $13, and it was priced at $9. Except the shares wound up opening at $87, and went all the way up to $97 before settling that day at $63.50—a 606% increase. (The social network’s stock price would collapse in the dot-com bust, and the company went out of business in 2008.)
The big question now is whether or not Dorsey will be able to do the same for his other company, Twitter. Analysts predict, however, that this is highly unlikely. And, unfortunately, it seems that they are right.
On Monday, Twitter shares closed 4% down, valued at just $25.20 per share. Their initial public offering price was $26. This really shows that the company continues to struggle with finding a way to turn its stagnating user growth around. Other, larger rivals are thriving and growing and this is really bringing the future of Twitter into question. And it seems that Square may have been somewhat of a fluke as well, as the shares have once again dropped by 6% to $12.12, although this is still above the expected value.
Dorsey is a busy man. He is CEO and co-founder of Square. He is also CEO and co-founder of Twitter. However, although he has been earmarked as the man who can turn Twitter around, investors are still waiting for such results. Chief analyst at Jackdaw Research, Jan Dawson discussed what the share price jump for Square means, and what Twitter can learn from that.
Long-term margins are dependent on achieving much greater scale and driving a lot more business from some of its non-payments activities. It’s no guarantee that it’ll achieve those things, but that’s the only way it’s going to happen.
He also feels that if Twitter is to deliver strong user growth or wants to see other positive results, they will need to be in it for the long run. He also stated that the third quarter results released by Twitter are not looking good, and this is something likely to scare investors. User growth is stagnant at best and there are even some signs that could point to the company actually moving in the wrong direction altogether.
Last month, Twitter officially admitted to the fact that it is still finding it very difficult to get new users on board. They also had to disappoint their investors by releasing their fourth quarter forecast, which was equally poor. Unfortunately, Twitter has to rely on the faith and trust of its investors, and this is dwindling. Confidence is dropping rapidly and many investors are now questioning whether there will ever be a turnaround at all. Although Dorsey seems to say all the right things, the results are not following suit.