The Twitter IPO For Investing Newbies

Twitter’s IPO is the hottest piece of news in the tech scene this week. Tomorrow, the microblogging slash social media platform is going to offer its stock to the public, which is inherently what an IPO is. Some of you may have a good bit of investing knowledge, but in case you don’t fully understand what all the hype surrounding the Twitter IPO is, here is a quick primer.

Short for “initial public offering”, IPOs are usually done by small, young (in relative terms) private companies so that they can expand. Since an IPO is the first time a private company opens up to the public, there is a lot of uncertainty regarding the company’s worth. It can swing both ways – with the public either snapping up or snubbing the stocks. For investors, IPOs can be risky as there is no historical data that can be analyzed to determine how the stocks will do in the future.

So at its core, an IPO is certain to attract attention, and it is even more the case when the company in question is something that has wormed its way into the daily lives of people around the world. Remember when it was Facebook’s turn? That was the talk of the town as well.

IPO Price

Tomorrow, the Twitter IPO will happen, with the share price at $23-$25 each. This move has made eyebrows shoot up, with the inevitable Facebook comparisons.

The 23- to 25-dollar per share price gives Twitter “a market capitalization of $13.6 billion at the top end of the range. That would value the company at 11.8 times its estimated 2014 sales, higher than the 11.4 times price-to-sales ratio for Facebook.” (Source)

Experts say that this is too high a value, especially as Twitter is not exactly profitable. Again, the inevitable Facebook reference comes up: when they increased their IPO price, investors (particularly of the individual kind) ended up paying more than they should, and they suffered loss. (To be fair, Facebook’s stock recovered this year.)

How to get Twitter IPO shares

Just in case you have some spare money to invest, should you buy into the Twitter IPO hype? It’s good to remember that IPOs are already riskier than regular investments, and there are pundits who are advising against buying into the hype. Still, if you think this is a worthwhile risk, here’s a quick guide on how to get Twitter IPO shares.

[Image via digitaltrends]