Breakout

Twitter IPO: Your Day #1 Playbook

Jeff Macke
Breakout

It's finally here. In less than 24 hours, Twitter (TWTR) will be freely trading as a public company and the world will most likely resume spinning on its original axis. There's no stopping it now; Twitter's IPO has become a force all its own. Hundreds if not thousands of people are working behind the scenes to make sure this thing goes off without a hitch. It would be easier to stop a tsunami with a tennis racquet than it would be to stop shares of Twitter from hitting the floor of the NYSE on Thursday morning.

Zor Capital founder Joe Fahmy isn't expecting Twitter's IPO to be as catastrophic as Facebook (FB). "If this doesn't open at $30, or even higher, I'd be shocked," says Fahmy in the attached clip. After the Facebook debacle of 2012, the investment banks have too much riding on Twitter to let it fail. However amoral they may be, the fact is, it's not in the bankers' best interest to see Twitter get crushed. A Twitter crash would be bad for the IPO franchise, and the banks have other companies they want to take public after Thursday. It's taken 18-months to get the public excited about another social network IPO. To the extent possible, the banks need this to go well. "They want to make a point," as Fahmy puts it.

Related: Why Twitter Has Teen Appeal: Rachel Fox

That said, there is a chance the banks can't help but screw it up. Twitter has raised its price range from $17 to $20 per share, to a range of $23 to $25. So far the offering is still 70 million shares, but Twitter has another 10.5 million shares it could sell by exercising an "over-allotment option." When Twitter's S1 was filed last month the company was looking to raise as little as $1 billion. As it stands today, Twitter could now sell as many as 80.5 million shares at $25 for a gross take of more than $2 billion.

The only thing bankers like more than making a point is making a ton of money. If the public appetite is strong enough, don't be shocked to see Twitter sell 80 million shares at $25/share. On Main Street that's called a bait and switch. On Wall Street it's called meeting demand on an "over-subscribed" issuance.

Thankfully, Fahmy has a quick and easy guide for people who just need to buy Twitter on Thursday. Your strategy depends on your time horizon and goals. "If you're a trader and you've defined yourself that way and you have some sort of loss-cutting discipline, you understand what you're doing and you're going to be tactical intraday, then stick with your process," suggests Fahmy. Godspeed and happy trading! Otherwise, "if you're an investor, you might want to wait."

If you think you're a Twitter investor hoping to catch a 25% pop on the open, then you're a trader in denial.

Go back to the beginning.

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