Following its IPO pop on Thursday, Twitter gives up some of those gains on second day of trading.
Twitter, the seven-year-old social networking company that went public Thursday, saw its shares fall Friday on its second day of trading. Stocks of the social messaging firm were roughly 8 percent lower, nearing $41 a share.
On Thursday, the stock enjoyed a strong pop after it began trading, sending its stock price as much as 92 percent above its estimated IPO price of $26 a share at one point. Twitter closed its first day as a public company at $44.90, just below its opening price of $45.
Still, the company's initial public offering amounted to the biggest Internet IPO since Facebook. Twitter, which is expected to report a $139 million loss in 2013, with revenues of under $500 million, according to Yahoo Finance, is valued at over $25 billion in market capitalization. Early Friday, Twitter stocks rallied 3.8 percent at the opening bell, climbing above $46 a share for a brief moment, but that upward momentum was proving elusive in early trade.
That’s because the methodology for SOCL, as well as IPO—an ETF that just came to market three weeks ago—stipulates that new stocks can be added to the respective portfolios as soon as five days after an IPO, assuming they meet other criteria. Global X Funds, the firm behind SOCL, recently told IndexUniverse it was ready to lead the charge when it came to offering Twitter shares in an ETF wrapper.
SOCL is the only ETF in the market today to focus exclusively on social media companies, and as such, it was one of the first to add Facebook to its portfolio just five days after the social media giant went public. Facebook represents about 13 percent of the fund’s exposure today. Interestingly, SOCL slid more than 3.5 percent Thursday on the heels of Twitter's IPO.
Similarly, IPO, which tracks an index that includes an initial public offering after it’s been trading for five days, and holds it for two years, was down about 2.5 percent Thursday. Facebook currently represents about 10 percent of that portfolio.
Twitter recently disclosed that it planed to sell 70 million shares between $17 and $20 a share, and estimates right before the pricing had IPO shares at as much as $40. The actual share price puts Twitter’s value at an impressive number even if a far cry from Facebook’s valuation of about $100 billion when it went public a year and a half ago.
"There is always a lot of speculation in the first few days," Bruno del Ama, head of Global X Funds, said in an interview with YahooFinance Thursday, noting that SOCL waits five days before including a brand-new IPO into the portfolio. "We like to see price discovery take place, and we start to see long-term buy-and-hold investors start to come in about five days after the IPO."
Twitter will join a booming segment of the market anchored by Facebook, whose share price has reached record highs in recent weeks. That share-price movement all but puts behind it its own infamous IPO on May 17, 2012, that was mired by technical glitches and was followed by a precipitous share price decline in the following months.
SOCL tracks a Solactive AG modified market-cap-weighted index, and while it’s likely to own Twitter right off the bat, details regarding the full allocation are still unavailable. Still, it’s safe to say that Twitter’s weighting in SOCL will be based on the company’s market capitalization after the IPO, given the indexing methodology.
While the fund remains relatively small, with about $98 million in assets, it has roughly quadrupled in size since Twitter first announced its IPO plans earlier this fall, following strong net inflows and a performance that has been nothing short of blockbuster so far this year. The fund has gained 51.5 percent year-to-date, far outpacing the broad stock market.
Chart courtesy of StockCharts.com
Renaissance’s IPO ETF, which came to market just three weeks ago, generated an enormous amount of interest right off the bat, gathering $31 million in the first few days of its life, as IndexUniverse’s Dave Nadig recently pointed out in a blog.
Twitter is likely to land in IPO rather quickly, assuming its IPO lives up the hype.
Beyond that, the social media giant may eventually land in other portfolios over a longer time period, e.g., in ETFs like the First Trust US IPO ETF (FPX | B-70). FPX tracks a market-cap-weighted index of the 100 largest U.S. IPOs over the first 1,000 trading days of each stock. Stocks must also meet other quantitative screens to make it into the index.
While the fund caps single-stock exposure to 10 percent, Facebook currently represents 10 percent of the portfolio. FPX, which has just over $241 million in assets, has seen gains of nearly 40 percent year-to-date.
The $215 million PowerShares Nasdaq Internet Portfolio (PNQI), tracking the modified market-capitalization-weighted Nasdaq Internet Index, is another fund that invests in the largest and most liquid U.S.-listed Internet-related companies, with two-thirds of the portfolio tied to information technology—names like Facebook, Google and Yahoo.
To be included in the portfolio, a security must have a market capitalization of at least $200 million, but it must also meet a certain minimum three-month trading volume, among other things, which suggests that Twitter shares might not be included in this fund until it’s been around long enough to meet all eligibility criteria.
PNQI is up 53 percent year-to-date, and allocates about 8.5 percent of the portfolio to Facebook—its second-biggest holding.