Twitter Seen Below $28 by Bearish Structured Note Investors

Twitter Inc. will fall below $28 by June after surging as high as $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 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.”

Photographer: Ron Antonelli/Bloomberg

A banner with the Twitter Inc. logo hangs outside the New York Stock Exchange, on Nov. 6, 2013. Close

A banner with the Twitter Inc. logo hangs outside the New York Stock Exchange, on Nov. 6, 2013.

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Photographer: Ron Antonelli/Bloomberg

A banner with the Twitter Inc. logo hangs outside the New York Stock Exchange, on Nov. 6, 2013.

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 Oct. 31, Bloomberg data show. Investors traded 276,000 euros ($370,000) of the products today.

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 percent to $41.23 at 09:50 a.m in New York. The stock has climbed 59 percent since it started trading Nov. 7, in the biggest technology initial public offering since Facebook’s last year.

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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 Nov. 15, NYSE Euronext said in a statement yesterday.

Loss-making Twitter contrasts with its social-networking peer Facebook Inc., 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 today fell 0.2 percent 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 percent for investors.

To contact the reporter on this story: Alastair Marsh in London at amarsh25@bloomberg.net

To contact the editor responsible for this story: Shelley Smith at ssmith118@bloomberg.net

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