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Originally published November 7, 2013 at 6:55 PM | Page modified November 7, 2013 at 9:16 PM

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Twitter stock flies on market debut

The social network reached a new stage in its evolution Wednesday, raking in $1.8 billion at a valuation of $14.2 billion, making it the second-largest tech IPO of all time, behind only rival Facebook.

San Jose Mercury News

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Twitter’s initial public offering rose in price throughout the company’s march toward Wall Street, but investors were prepared to pay much more Thursday.

The social network reached a new stage in its evolution Wednesday evening by selling at least 70 million shares at $26 apiece, raking in $1.8 billion at a valuation of $14.2 billion, making it the second-largest tech IPO of all time, behind only rival Facebook.

Investors seemed to think Twitter could have priced shares even higher, however, sending that price soaring more than 70 percent to $45.10 in the initial trade Thursday on the New York Stock Exchange.

The price moved higher than $50 briefly in the first 10 minutes of trading, hitting a high of $50.09, and shares sold for no lower than $44 before closing at $44.90, 72.7 percent higher than the IPO price. At its closing price, Twitter had a market capitalization of $24.5 billion.

Twitter initially sought $17 to $20 for its initial batch of shares, but after CEO Dick Costolo and other executives met with potential investors nationwide to gauge demand for a piece of Twitter, the price began to rise.

Monday morning, Twitter increased the possible range for its IPO price to $23 to $25, then decided to charge investors $1 more than the top of that range. When the price nearly doubled Thursday on the open markets, some experts had flashbacks to the dot-com bubble.

“What’s going on is hysteria for the moment,” Larry Chiagouris, a professor of marketing at Pace University’s Lubin School of Business in New York, said Thursday. “Until you hear evidence that a Fortune 500 company has put a quarter of its advertising budget into social media, it’s hard to conclude these companies are very viable.”

A fellow academic disagrees, however. Robert Hendershott, a Santa Clara University finance professor and private equity expert, said that Facebook’s early faceplant — Twitter’s Menlo Park, Calif., rival rapidly increased its price tag leading up to its May 2012 IPO, then traded lower than that price for more than a year — could validate Twitter’s IPO performance.

“Given how Facebook was beaten up after its IPO, the story that investors are just euphoric and willing to pay any price for social-media companies just doesn’t fly,” he said Thursday.

“You have to execute, and that is different from what we saw in the late ’90s, and that’s what makes Twitter’s price today a lot more credible, because you know investors are looking at the real potential and not just some pipe dream,” he added.

In a nod to the importance of its users, Twitter allowed three of its popular tweeters to ring the opening bell Thursday at the NYSE, an honor usually reserved for company executives. Sir Patrick Stewart, the actor known for his roles on “Star Trek: The Next Generation” and the “X Men” movies; Vivienne Harr, a 9-year-old girl from Fairfax, Calif., known for spending a year raising funds with a lemonade stand to fight child slavery; and a representative of the Boston Police Department, which broadcast its chase of suspects in the Boston Marathon bombing, were chosen to open Twitter’s first trading session.

Demand for Twitter stock didn’t seem to be damaged by the price increases leading up to its Wall Street debut: Reuters reported Thursday morning that the IPO was 30 times oversubscribed, meaning demand was 30 times greater than supply, with 10 institutional investors receiving half the shares that were doled out.

Like Facebook, Twitter generates its revenues from advertisements, with businesses paying to promote their tweets in users’ timelines on personal computers and mobile devices.

The company has taken pains under CEO Dick Costolo to develop its revenue generation in the past year by opening its ad platform to third-party software, improving ad targeting with the use of cookies and data-mining, and acquiring companies such as MoPub, which will allow Twitter to offer advertisers real-time auctions for purchasing ads.

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