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“Phew!” tweeted Anthony Noto, the lead banker on behalf of Goldman Sachs for Twitter’s much-awaited IPO. That one word captured the relief his bank and Twitter would have felt following the start of trading of Twitter’s stock on Thursday. The shares opened at $45.10, up 73% from the IPO price of $26. There did follow some uncertainty for a while, with the stock swinging up and down, but it soon settled at $46 and spent the rest of the day in that region. The shares closed at $44.90. The reason there was so much anxiety surrounding Twitter’s IPO was because of the debacle that was Facebook’s public offering. Facebook’s IPO price was $38.46, considered by many as being too high. The market backed this view, with the social network’s stock trading almost $10 below its IPO price within a week. And the stock price maintained a steady decline for two months thereafter. The concern with Facebook was that it did not have a strong revenue model—its advertising model at the time was patchy and was non-existent in mobile, the segment that was driving Facebook usage growth. Recently, Facebook’s stock has recovered, but that’s only after the company solidified its advertising revenue model.
In Twitter’s case, investors don’t seem too concerned about its revenue model; indeed, they seem quite confident about the future prospects of the company—quite an interesting perception considering the fact the Twitter has yet to turn a profit. Twitter’s advertising model is pretty strong. It consists of sponsored tweets being placed prominently on your feed. However, considering a tweet is just 140 characters long, these sponsored tweets do not intrude on those who are not interested in the ads, while effectively targeting those who are. And, happily for Twitter, it works as well on mobiles as it does on a computer.