If you’ve been paying attention to the news, you’ve probably heard about Twitter becoming a public company with stocks available to buy and sell on the open market. Financial analysts and insiders have been eagerly awaiting this event, as Twitter is currently one of the most popular social media outlets on the web. However, popularity aside, the question is whether Twitter will be able to transition into a profit generating company.
The question of how Twitter will generate revenue is no small matter. In order for its stocks to be valuable, the company must be profitable. But since Twitter is free to users, and to date has not yet shown a profit, those who would buy Twitter stock are taking a big risk.
Twitter originated as a text message service, and then coined the term “micro blog”, as users are limited to 140 characters. As it grew in popularity, users have shifted from tweeting about personal matters (although many still do) to joining in on mass conversations, or trending topics, including news and politics. The use of hashtags on individual tweets ensures that everyone else using that hashtag will see your tweet. Twitter has thus become a useful tool for news organizations to informally poll public opinion. It’s also a great way for politicians and world leaders to share their views. On a smaller scale, Twitter continues to be a tool that many use to keep in touch with friends and family.
Like Facebook and other social media outlets, Twitter intends to generate revenue by selling space on the network to advertisers. But since this is a new use of the network, it remains to be seen how successful this will be. Users are accustomed to Twitter being an ad free space, so Twitter must proceed carefully, or it risks losing users who are annoyed or offended by the new ads. Fewer users would mean that Twitter would have to charge its advertisers less, and narrow its profit margin.
With the question of Twitter’s potential profitability unanswered, there has been much speculation as to what the share price of its stock will be on its opening day. Twitter’s owners are hoping to sell shares at the highest price possible, earning money that they can reinvest into the company and becoming millionaires in the process. Traders, of course, are hoping to buy low and sell high. Only time will tell if Twitter fulfills its promise of profits for its shareholders.
As of 1:00PM Eastern, November 8, 2013, Twitter opened on the New York Stock Exchange (NYSE) with a share price of 45.93 USD. The share price quickly spiked to 46.94 USD as demand surged, but then rapidly decreased, settling in the 42 to 44 USD range. News sources state that the high demand for shares has made this a very successful opening day for Twitter’s owners, netting them millions if not billions of dollars.
Although they’ve seen a successful opening day, Twitter �s shareholders now hope to see stock prices remain steady or rise. Famously, Facebook went public earlier this year and share prices dropped dramatically and quickly. Twitter certainly hopes to avoid this in the coming days. Insiders say that they are confident that Twitter has done the research and is poised to prove its value.