After slumping for most of November, the hottest IPO of the year is ripping into December. Shares of Twitter (TWTR) have gained 25% so far this month, busting through to fresh new highs this morning, only 5 weeks after its November 4th debut.
As Yahoo Finance interactive media editor Phil Pearlman and I discuss in the attached video, there are at least 3 key reasons why the microblogging site has suddenly found itself in favor again, and trading back above $50, with a market value of nearly $30 billion.
1) New Targeted Ad Platform
Even before its IPO, Twitter skeptics were unimpressed with its rising costs, slowing subscriber growth rate, and comparable small revenues, which are about one-tenth those of Facebook’s (FB). However, in less than a month, the company is testing a new targeted ad program, Pearlman says, with companies such as Delta Airlines (DAL), that will flash an upgrade offer in your twitter stream after you’ve bought tickets for a flight.
Currently, ads (or sponsored Tweets to be literal) are more general but the new program carries lots of upside potential, and hopes for higher revenues via higher ad rates, assuming the pilot program produces the desired results.
2) Big Demand, Small Float
Another reason why this baby of a company is up and running so soon, Pearlman says, is due to the fact that the initial float, or amount shares actually issued, is very small. What that means is that it doesn’t take much of an uptick in demand to outpace supply, and thus drive the price higher.
To be sure, this is a concept that can cut both ways, and momentum stocks such as Twitter can cool off equally fast if a sudden glut of sellers were to emerge. This was also a factor back in November, when the expected price range on the deal was raised, before ultimately being done at $26 a share, and opening up for trading at $45.
In the meantime, Pearlman points out that this social media “mojo play” is a favorite pick of fund managers, who need some big year-end winners to help them catch benchmarks, such as the S&P 500, which is up 27% so far in 2013.
For the record, Twitter has not been included in any major equity indexes yet.
3) The Chart Looks Great
After a strong offering period and opening day of trade, shares of Twitter would go from $50 down to $38.80 in their first four week as a publicly traded stock. Since troughing on November 25th, the stock has regained all its lost ground, and then some, and is now entering uncharted territory.
“From a technical standpoint, it’s also positive,” Pearlman says, noting that the gains of the past week have come with good volume as well.
For the record, FactSet data shows that 39% of 23 analysts with an opinion on Twitter currently rate it as a buy, while 43% have labeled it a hold. Their median price target is $41.53, which is about 20% below the current price.