November 13, 2013 - No. 131
Twitter's First Day of Trading
The Necessity for an Alternative
First Day of Trading
• The Necessity for an Alternative
• Class Privilege Destroys the Socialized
Twitter's First Day of Trading
The Necessity for an Alternative
The Twitter initial public
offering (IPO) became the 193rd IPO in the U.S. this year. The owners
Twitter recently sold 13 per cent of their privately held shares in the
company to institutional investors for $1.82 billion divided into 70
million shares or $26 per share. These shares became available for
on the New York Stock Exchange on November 7. The first trades took
almost two hours to match sellers and buyers with the first price
reported at $46 per share. By 4:00 pm, 117 million Twitter shares had
been traded. The $20 immediate increase in price meant a big payout for
the favoured buyers who were
offered the stock at $26 before its being publicly traded. As trading
began, the 70 million initial public shares suddenly had a market worth
of $3.2 billion, a $1.4 billion increase for their owners in a matter
of days. And the rich get richer.
The financial institutions received a potential $1.4
billion plus service fees from the IPO and the Twitter Company $1.8
billion in new cash. Twitter says it needs the money to finance its
company, especially since it has not yet discovered a way to realize
the service it provides except through selling advertisements,
which is inadequate.
The remaining bulk of the Twitter
shares are held by various individuals and several companies that
bought into the company during the last few years. As of September 30,
2013, Twitter had 474,696,816 shares of common stock outstanding
(including preferred stock) and 128,482,939 shares of common stock
subject to outstanding equity awards and warrant exercises. The $44 per
share trading price puts the market value of the company stock at
around $27 billion. Company stock of principal individual owner Evan
Williams is worth $2.7 billion, that of Jack Dorsey $1.2 billion and
CEO Dick Costolo $368 million.
The financial enterprises given the
opportunity to buy
the initial 70 million shares and earn service fees say they deserve
the payout since they took a risk as the share price could have fallen.
The companies that benefitted from the rise in the IPO share price in
addition received from 3.5 to 5 per cent of the market
price for providing brokerage and other services. The names of the
companies involved are well known including: lead underwriter, Goldman
Sachs; additional underwriters, JP Morgan, Morgan Stanley, Bank of
America, Merrill Lynch, Deutsche Bank, Allen & Co, Code Advisors.
The 193 IPOs this year translate into a very profitable
one for the big financial institutions. These are mostly the same
companies deemed "too big to fail" in 2008, resulting in the government
giving them billions in public money through the Troubled Asset
Relief Program (TARP) to purchase their
"troubled" assets and equity. In addition, the U.S. Treasury funnels
public money into their hands through the privately-controlled (or
public-private-partnership) U.S. Federal Reserve. This new money, which
is generated electronically rather than printed, is provided through
the federal government's QE1 and QE2
(quantitative easing) programs. Since 2008, the public funds handed
over this way now exceed $4 trillion with an additional $85 billion
flowing every month. The new money put into circulation is greater by
far than the U.S. growth of goods and services during the same period.
The chart (below) shows the growth in the U.S. M1 money
which is the broadest indicator of money in circulation, compared with
U.S. GDP growth, an indicator of the production of goods and services.
The QE program effectively gives the financial
institutions money to engage in IPOs, lending and other activities. It
keeps interest rates low generating extensive borrowing. This borrowing
includes money to buy stocks. The collective price of stocks listed on
U.S. markets has now reached record high levels.
The number of stocks purchased on margin is also reportedly at record
An article in Forbes.com says, "NYSE margin debt has
soared to levels that marked the peaks of the prior bubbles in 2000 and
2007. This shows that traders are so confident in the market's
prospects that they are leveraging their bets with borrowed money,
which is further boosting the market by increasing traders'
buying power." ("Twitter's IPO Is More Proof That Tech Is in a Massive
Bubble" - Jesse Colombo)
The Globe and Mail writes, "The U.S. Federal
Reserve's easy money policies, plus the big gains by stock markets this
year, have created a voracious appetite for new shares and made big
first-day gains [for IPOs] a regular occurrence. The number of IPOs in
the U.S. has jumped 60 per cent to 193
this year from last year, the highest level since the tech bubble at
the turn of the century. A similar upsurge is evident in the Toronto
Stock Exchange, where IPOs raised $2.1-billion in the first nine months
of this year, a dramatic increase from the $397-million raised in the
same period a year earlier, according to
Pricewaterhouse Coopers. [The trading prices of] U.S. IPOs this year
have jumped by an average of 17 per cent on their first day of trading
.... Twitter's huge first-day gain wasn't even the best performance for
IPO this year. Six offerings have doubled or more on their first day of
trading .... That compares to just
eight IPOs that doubled on their first day between 2001 and 2012."
("Twitter Joins the Party: Investor Demand Soars for New Stock
The auto monopolies have used the
low interest rates and abundance of money in the financial system to
induce purchasing of vehicles on credit, including a growing number of
subprime auto loans. Even flipping of homes has returned in those
regions of the U.S. hardest hit in the subprime mortgage crisis of
2008 (California, Arizona, Nevada and Florida).
The saturation of the economy with
a money supply well
beyond its growth in goods and services does not bode well. The
mobilization of this money into schemes for its redistribution and
concentration within the hands of a few, to serve the narrow interests
of the private monopolies and to pay for the U.S.
military, its ongoing wars, war preparations and special ops is a
recipe for yet more crises and global disasters. The prediction is for
significant inflation, rising interest rates, widespread bankruptcies,
and yet more unemployment, economic chaos and crises.
In contrast, the people demand control over the
collective wealth, its use and distribution. The people demand that
money should be mobilized for the reproduction of the economy and for
investments in public services and social programs to guarantee the
well-being of all and their rights, and to humanize the
social and natural environment.
The state monopoly capitalist system is incapable of
healing itself; it needs the firm hand, and advanced thinking of the
working class to move the economy forward in a new direction. The
recurring economic crises prove that the monopoly capitalist economy
cannot resolve its problems and does not work. Owners
of monopoly capital who control the economy, political institutions and
state treasury refuse to recognize that a new direction for the economy
is required. The organized and socially conscious people must deprive
finance capital of its power to deprive the people of control over the
basic economy and the collective
wealth that is rightfully theirs. The working class and its allies are
charged by history to develop an agenda that charts a new direction for
the socialized economy that resolves its contradictions and steers it
away from the recurring crises, which cause the people so much pain and
suffering and waste so much of its
actual and potential value.
Class Privilege Destroys the Socialized Economy
In preparation for Twitter's initial public offering
company filed a prospectus with the Securities and Exchange Commission,
which contains recent financial statements and details of equity
ownership. Next, it came to an agreement with favoured financial
enterprises on buying the initial allotment of 70 million
shares for $26 per share. Twitter gained $1.8 billion for its coffers
in the sale of these shares. The company made only the 70 million
shares available for public trading on November 7. Some of the
remaining shares will start trading next February, with the bulk owned
mostly by Twitter executives and directors
to begin trading in May.
The initial sale price of $26 when multiplied by the
total number of outstanding shares held by the ownership group became
the estimated equity value of the company. According to the prospectus,
the number of outstanding shares was 690 million giving the company an
estimated equity value of $18 billion.
At the close of public trading of
the 70 million Twitter shares after the first day, the market price of
one share had jumped over 70 per cent to $44.90, with the first trades
at $46, which was $20 higher than the IPO $26 price paid by the big
financial enterprises. The closing higher price meant a potential
windfall of over one billion dollars for the privileged owners of the
initially traded shares. Twitter stock owners of the 70 million shares
trades of those shares on the first day of trading. After the first
trades for $46 dollars, the price rose as high as $50 and closed at
$44.90. Taking the closing price as a low average,
$5.285 billion changed hands amongst traders of Twitter shares on that
first day alone with the initial owners making a big score.
This corrupt activity seriously harms the socialized
economy and undermines its reproduction. Money is taken out of the
economy and concentrated in the hands of a few. Also, U.S. Treasury
money funneled into the hands of the big financial enterprises for this
reckless activity distorts the value of the currency
eventually weakening its buying power causing price inflation.
The ruling elite are incapable of restricting this
parasitic activity because they benefit from it using their positions
of class privilege. History demands of the working class an enormous
effort to organize itself, wage actions with analysis in defence of the
rights of all, and arm itself with modern definitions and
social consciousness to put an end to this decaying economic system
dominated by class privilege. Only the organized working class can
chart a new direction for the socialized economy that assures its
reproduction without crises so that the people's well-being and rights
can be guaranteed.
Twitter's Fictitious Valuation
The higher market valuation of the company on the first
day of trading jumped up the equity or market value $13 billion to $31
billion. The large jump in the price shows that both valuations are
fictitious, speculative and self-serving.
The details of the first valuation arriving at $26 per
share are not public knowledge, and the second market valuation is
clothed in hype. Much of the initial money involved could be traced
back to the U.S. Treasury and Federal Reserve's two recent programs of
quantitative easing, which have made four trillion
dollars of additional public money available to the largest financial
enterprises. This destructive activity is reflective of the outmoded
private relations of production that control competing parts of the
basic sectors of the socialized economy.
In sharp contrast to both the $18 billion and $31
billion valuations, Twitter's financial statements and website reveal a
much different situation for the company. As of June 30, 2013, the
- property and equipment (net value): $242,553,000
- cash and cash equivalents: $164,509,000
- short-term investments: $210,549,000
- Accounts receivable: $123,709,000
- Prepaid expenses: $23,953,000
- net intangible assets: $14,439,000
- goodwill: $163,715,000
- other assets: $20,632,000
Total assets: $964,059,000
Total liabilities: $255,898,000
Net tangible and intangible assets: $708,161,000
Twitter produces 500 million tweets a day. It has 215
million global users of its service, which is provided free of charge.
Forty million people are users of Twitter's Vine
service, through which users share 6 second clips of video. It is also
a free service.
Twitter does not pay any dividend on its stock.
The evaluation of Twitter at $18 billion or $31 billion
is not believable for a company that has only 2,000 employees in
offices around the world, even though it says 50 per cent of those
workers are engineers. Economic law says the valuation of the service
Twitter provides arises from the work-time of its employees
and the transferred-value from material consumed in the production
process. To sustain an average rate of return on capital of $18 billion
or $31 billion would require tens of thousands of workers producing
value with many of those workers of high quality in terms of education
Twitter has never made any equity profit, only interest
profit. In 2011, Twitter had gross income of $106.3 million, which was
$128.3 million short of meeting claims on added-value and
In 2012, gross income was $316.9 million, which again
was short $79.4 million.
In the first six months of 2013, Twitter's gross income
was $253.6 million but this was short over the six months from claims
on added-value and transferred-value by $69.3 million.
Eight-five percent of Twitter's income derives from
advertising with the rest coming from licensing of data to third
Media reports say that prices for ads on Twitter have
been falling. Also, the growth of the company's user base is slowing,
which is natural over time given the already large size of its user
Three-quarters of Twitter's regular users live outside
the United States, but three-quarters of the company's ad revenue comes
from within the country. Global competition, especially from Asia, is
emerging for the user base of this type of service, especially given
the espionage and military applications of the
service. Control over the service (and the entire Internet) is
increasingly seen as an aspect of defence against U.S. threats and
bullying. This will make global growth of ad income very difficult for
The Twitter valuation was for purposes of gambling on
the stock market and making a big score for a privileged few at the
expense of weakening the socialized economy.
The Twitter Board of Directors is comprised of
well-placed representatives of finance capital including agents from
Rupert Murdoch's News Corporation (Fox Entertainment), Netscape,
E*Trade Financial Corporation, Gemstar, Safeco Corporation (Liberty
Mutual Group), Sun Microsystems, etc.
Two examples are used to compare the Twitter valuation,
one from material production and the other a service company. The first
valuation is larger and the second one smaller than that of Twitter.
The context is to show the Twitter evaluation as highly subjective and
self-serving on the part of those who stand
to gain from this parasitic activity.
Praxair Inc.: largest U.S. producer of gases
available for practical applications, and supplier of high-temperature
and corrosion-resistant metallic, ceramic, and powder coatings, mainly
to the aircraft, plastics and primary metals markets.
Compared with Twitter's 2,000 workers, Praxair has
Compared with Twitter's 2012 gross income of $316.9
million and loss of $79.4 million, Praxair had a gross income of
$11.224 billion and net income of $1.692 billion.
In spite of the wide difference in number of workers and
gross and net income, Praxair's market capitalization is only
approximately $5.8 billion more than Twitter at $36.873 billion. On
November 7, Twitter's was $31 billion.
National Bank of Canada: the sixth largest full service
bank in Canada.
Gross income: $5.313 billion CAD (2012)
Net income: $1.634 billion CAD (2012)
Employees 19,920 (Oct, 2012)
The National has a market capitalization of $14.918
billion, less than half Twitter's valuation.
Both Praxair and the National Bank pay regular dividends
to shareholders while Twitter does not.
The Twitter valuations are a fraud and scam for purposes
of making a big score for a privileged few at the expense of the
Note on the Promotion of Twitter and Certain Other
The U.S. imperialist state
highly values Twitter and wants to see it grow within the U.S. and
abroad as a weapon in its overt and covert fight for global hegemony
and to subvert the people in the U.S. in their fight to defend their
security and rights, and for an anti-war government. The Twitter
service is integrated
with the U.S. state military and espionage agencies. The service plays
an increasing role in U.S.-led regime change and fomenting of violent
tribal, religious, ethnic and other clashes. The U.S. imperialists have
successfully used Twitter and Vine to spread gossip, rumours and
disinformation in small unchallengeable
and unverifiable chunks of words and video. This has aided the U.S.
espionage agents and military to generate chaos and upheaval in
targeted countries. This activity is also aimed at generating support
for big power intervention in sovereign countries under the imperialist
hoax of "responsibility to protect."
Twitter also spreads celebrity worship of leading
figures of U.S. imperialist culture. Twitter and other U.S.-controlled
media weaken targeted states and pave the way for subversion and direct
U.S. military involvement throughout the world, especially at this time
in West Asia and throughout Africa and to wreck
public opinion opposing imperialist war and violation of the
sovereignty of nations. The drive for U.S. world hegemony is aimed at
seizing control of markets, sources of raw material, workers and
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