Did the Nasdaq Just Lose the Twitter IPO?

Twitter

Source: http://www.flickr.com/photos/joshsemans/

Twitter will be listed on the New York Stock Exchange — operated by NYSE Euronext (NYSE:NYX) — and not the Nasdaq — operated by Nasdaq OMX Group (NASDAQ:NDAQ) — according to TheStreet. The social media platform, which tweeted about its confidential S-1 filing on September 12, is expected to sell between 50 and 55 million shares priced between $28 and $30, raising between $1.4 billion and $1.65 billion. Such a sale would value the company somewhere between $15 and $16 billion, higher than the $10 billion estimate that was tossed around a few months ago.

It’s not a perfect analogy, but initial public offerings are to Wall Street as blockbuster movies are to main street: a tremendous amount of hype typically surrounds both events. Marketers shift into a higher gear and promote their product — in one case, a movie; in the other, an investment — and would-be consumers digest the data, generate buzz, speculate, and ultimately make a decision.

Twitter is kind of a unique case, though. Company management has tried pretty hard to keep things calm, telling the Wall St. Journal in February that a Twitter IPO was “not necessarily inevitable.” This, of course, has now been turned on its head, and the atmosphere is thick with speculation and expectation.

Most observers seem to agree that playing it safe and trying to keep things calm when it comes to an IPO is the right strategy for Twitter. However, this strategy has had an awkward and perhaps unintended consequence. When investors think Twitter is doing the right thing, they get even more excited about the company. Everything Twitter does right earns it increased attention, even if the right thing is to keep its head down.

One of the reasons playing it safe seems like the best path to take is because no one wants a repeat of the Facebook (NASDAQ:FB) IPO, which has gone down in history as a fairly textbook example of a bad debut on the market. The IPO — launched on the Nasdaq — was plagued with technical errors. Combined with a huge amount of hype and a valuation that was, at the time, perhaps too generous, it was a recipe for disaster.

Facebook launched its IPO on May 18 with shares priced at $38 a pop and some combination of deflating hype, technical malfunction, and market voodoo drove shares down more than 32 percent by June 5. By September, the stock had lost more than 50 percent of its value.

The price action was, perhaps, a wake-up call for CEO Mark Zuckerberg. The company cracked down on monetization and punctuated several quarters of strong financial results with a report in July that drove the company back up to its IPO valuation of about $100 billion. A rigorous focus on becoming a world-class advertising platform with demonstrable revenue streams was what it took to convince Wall Street to drink the Kool-Aid. But the victory was hard fought, and nobody — not investors and certainly not Twitter — wants a repeat.

The problems experienced by Facebook likely played a role in Twitter’s reported decision to list on the NYSE. After botching Facebook’s IPO in 2012 and experiencing some minor technical errors over the past few years, the Nasdaq has a reputation to mend. Both individual and institutional investors have raised concerns with the exchange because of these issues, and the exchange has had to pay $10 million to the SEC to settle allegations that it violated securities laws in relation to the Facebook IPO. Nasdaq didn’t have to admit or deny guilt, but the public generally faults the exchange for the fiasco.

Here’s Scott Culter, head of listings at the NYSE, speaking with Bloomberg on listings, before the news that NYSE landed the listing.

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