The 5 Dumbest Things on Wall Street This Week: Oct. 11
5. Twitter's Twits
Twitter. Tweeter. What's the difference?
Other than about $13 billion smackers that is.
In perhaps the single stupidest occurrence we here at the Dumbest Lab have witnessed in some time, overeager investors last Friday snapped up Tweeter Home Entertainment Group stock, which trades over the counter under the ticker "TWTRQ," mistaking it for shares of the still private Twitter, which is expected to start trading publicly in November under the symbol "TWTR." Shares of the bankrupt electronics retailer climbed as high as 15 cents Friday, up 1,400% from last Thursday's closing price of 1 cent.
Volume in Tweeter surged to 14.4 million shares from its regular daily average of about 29,000 as experienced traders rode the stock up on the backs of inexperienced retail investors who asininely believed they were purchasing a piece of the social media platform. Trading in Tweeter was eventually frozen with the stock at 5 cents around 1 p.m. Friday after the Financial Industry Regulatory Authority realized that too many rubes were stocking up on shares of a "possible initial public offering of an unrelated security." On Tuesday, Tweeter reopened for trading with the ticker changed to "THEGQ" and promptly fell back to a penny.
No fooling, FINRA! Did you really need more than three hours to halt that stock? It took 3 seconds for the rest of the world to figure out it was a case of mistaken identity.
Of course, this silly ticker mix-up is just the start of the insanity that will surely envelop Twitter as it legs its way to its IPO. Just as we enjoyed weeks of Wall Street wackiness prior to Facebook's
And its already starting judging from the price targets being plucked out of the air by Wall Street's bullish analysts.
In the offering prospectus, which was unsealed last Thursday and the catalyst for all this madness, Twitter pegged the fair value of its common stock at $20.62 a share as of August. It's been widely reported that there are 620 million shares outstanding, which in turn gives the money-losing company a starting market value of just under $13 billion despite the fact that it has lost over $400 million since its inception in 2006.
Nevertheless, the company's IPO filing shows it generated $317 million in revenue in 2012 and had more than 218 million active users in the second quarter, up 44% from the prior year. That's enough of a growth story to spur the likes of Ironfire Capital, SunTrust and Gamco Investors to tell Bloomberg that Twitter could be worth $15 billion to $20 billion once it begins trading. Similarly, Jeffrey Sica, president of New Jersey-based Sica Wealth Management, foresees a valuation of as high as $40 billion when Twitter finally opens for trading.
Now we're not saying these folks will be proven wrong. By all rights, Twitter may explode from the outset and not look back, even though Facebook took a long trip down before finally eclipsing its offering price this past summer.
In other words, Facebook's crappy post IPO performance does not guarantee Twitter's future results.
That said, the already apparent idiocy over Twitter's upcoming offering certainly brings to mind the mishegas of Facebook's IPO. That's why we think Twitter founder Jack Dorsey may want to forget about a big splashy offering altogether and simply go public through a reverse merger using Tweeter as the shell company.
Heck, all his future investors are already trading that ticker anyway.