BackTwitter will fall below $28 by June, say structured product investors
Investors are speculating the lack of profitability will weigh on shares of the microblogging service
PremiumTwitter raised more than $2 billion selling shares at $26 in an initial public offering (IPO) last week. Photo: Leon Neal/AFP
London:Twitter Inc. will fall below $28 by June after surging as high $50 in the company’s first five days of trading, according to structured product investors.
Nine of the ten most traded securities listed on European exchanges and tied to the shares of the short-message Internet service are put warrants, whose buyers profit if the shares drop below a pre-defined level, according to data compiled by Bloomberg. Twitter raised more than $2 billion selling shares at $26 in an initial public offering (IPO) last week.
Investors are speculating the lack of profitability at San Francisco-based Twitter, which lost $64.6 million in the third quarter, will weigh on the shares of the microblogging service. The company is unlikely to make a profit until at least 2015, according to the average of analysts’ estimates compiled by Bloomberg.
“We have seen strong interest on the short side ever since Twitter started trading above its IPO price," said Heiko Geiger, head of public distribution of structured products for Germany and Austria at Bank Vontobel Europe AG in Frankfurt. Investors believe the stock is highly overpriced and seem to be questioning if a company that has never made a profit should have a market cap of $24 billion.
Deutsche Bank AG, UBS AG and BNP Paribas SA are among banks listing 2,169 structured products for European investors tied to Twitter stock since 31 October, Bloomberg data show. Investors traded €276,000 ($370,000) of the products on Wednesday.
Put warrant
Zurich-based Vontobel issued the put warrant with the greatest volume since the IPO, a security that will reward investors if Twitter’s shares are below $28 in June.
German broker Lang & Schwarz Tradecenter AG, which offered trading of Twitter-linked products before the company’s IPO, sold the most-traded call warrant, which profit when the shares rise, with a strike price of $35 and a March maturity.
Twitter fell 1.6% to $41.23 at 09:50am Wednesday in New York. The stock has climbed 59% since it started trading 7 November, in the biggest technology IPO since Facebook Inc.’s last year.
Options on the shares of the San Francisco-based company, which give investors the right but the not obligation to buy or sell the stock at a given price by a future date, will begin trading on 15 November, NYSE Euronext said in a statement.
Loss-making Twitter contrasts with its social-networking peer Facebook, which was making money at the time of its stock market debut. While Facebook fell after its $16 billion IPO, which priced the company’s shares at $38, it has since climbed back, fueled by profits and sales growth. Facebook on Wednesday fell 0.2% to $46.5.
The most actively traded securities linked to Menlo Park, California-based Facebook after its IPO were put warrants, which generated profits of as much as 500% for investors. Bloomberg
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