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Introduction
In the past two decades, the market has been filled up with cash without
real valuations sometimes (Trainer, 2016). This means that many stocks
have traded at incredibly high prices without real business supporting
them. This is the case of Twitter, which by the end of 2013 debuted on
the New York Stock market with a stock initially valued at $26 per share
but eventually debuted at $45.1 due to an oversubscription. The
objective was to obtain at least US $ 2100 million in the offer (La Nacin,
2013).
Background
Twitter came out in 2006, founded by Jack Dorsey, Biz Stone, and Evan
Williams. The company is a social networking and blogging platform that
allows users to be connected by posting latest updates. Twitter is an
emerging firm that highlights its simplicity and "spontaneity without
filter" (Scarpinelli, 2013). The network became an original way of
accessing information on the web and "chatting". Twitter, a company
that is based on the digital experience of real events and the second
screen of the TV, had until 2013 about 218 million monthly users in the
world, of which 100 million participate and produce 500 million tweets
daily (Scarpinelli, 2013).
Case Study
TWITTER
The most critical issues for Twitter are its negative profits getting even
worse, the small user based compared to its competitors, the slow
growth in new users and the greatly overvalued stock price (Trainer,
2016). Unfortunately, the fact of shares being hovering around and
ending up in $44.90 from its original price of $26, made Dorsey a
billionaire, but just in paper. By the closing of the IPO, stocks units had a
value of $3.86 billion, giving an average of $1.68 million per employee.
(Demos, Dieterich & Koh, 2013). It could be understood that one of the
reasons for such high prices on the stock market is investors paying for
untapped potential, as Twitter isn't actually profitable. Twitter was by the
end of the year 2013, the most expensive stock in its group, valued 20
times more of the expected future two-year term in sales.
Possible Consequences
business created the assumption that all online companies had a great
economical future. As a result, Geier (2013) explains that all companies
that were launched during this period were having significantly
overvalued stocks ignoring the lack of revenue or cash flow. This ended
up with investors having significant losses due to their unrealistic values.
It is, therefore, important to consider that another crash could be a
possible scenario for Twitter if investors and directors are nor careful
enough and prices are over the roof without a real market analysis.
Nevertheless, the internet is a reality and a continuous market that we
cant stop. It has changed everyones lives in terms of communication
and it has directly affected the way of doing business.
Recommendations
References:
Geier, B. (2015). What Did We Learn From the Dotcom Stock Bubble of
2000? Time. March 12th. Retrieved from http://time.com/3741681/2000-
dotcom-stock-bust/
Demos, T., Dieterich, C. & Koh, Y. (2013). Twitter IPO: Relief, Riches and a
$25 Billion Finish. The Wall Street Journal. November 7th. Retrieved from
http://www.wsj.com/articles/SB100014240527023033095045791824034
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