Twitter’s filing for an IPO last week was the most exciting thing to happen to social media stocks since Facebook.
The popular social media platform announced it would be using the ticker symbol TWTR (makes sense), and while its long-term outlook is uncertain, the IPO seems to have been a huge boon for the stockholders of a defunct electronics retailer named Tweeter Home Entertainment Group. The value of its stock went up over 1000% — from 1 cent to 15 cents a share.
Why? Well, Tweeter’s stock symbol is TWTRQ – the Q is added to ticker symbols in bankruptcy cases. The Internet rushed to laugh at the “confused investors” who pumped up Tweeter’s stock value from one cent to fifteen cents. But not so fast — pure confusion might not be the culprit. Was it a scam? Here are a couple of reasons (other than confusion) Tweeter shot the penny-stock moon.
Tweeter Investment Could Be an Email Scam…
Email newsletters are a big part of the penny stock market. Howard Lindzon, of StockTwits, theorized that a “smart scumbag” could buy up a load of Tweeter shares, then write a newsletter suggesting that the TWTRQ stock would be big when the Twitter IPO was announced. It doesn’t seem that far fetched, reports Buzzfeed:
One can imagine a convincing email newsletter, sent with the intention of boosting a stock, concocting some sort of connection between the two, or suggesting that Twitter would somehow need to interact with TWTRQ in order to start trading as TWTR.
Unfortunately for those duped by such a newsletter, Twitter doesn’t have to buy up TWTRQ shares, or anything else of the sort, to be able to use the TWTR ticker.
…Or Savvy Penny Stock Traders Tried to Con Everyone
In mid-September, Twitter’s official Twitter feed tweeted:
… and the shares of TWTRQ skyrocketed then, as well. The price in that case dropped quite quickly, and stayed down until October 3, when Twitter Tweeted again:
This lead to the 1000-plus percent jump in Tweeter stock we saw last Friday.
But in between those spikes, trading volume on Tweeter shares remained high — ten times higher than normal. Seems that penny stock enthusiasts were counting on a second spike as the actual IPO drew closer, hoping clueless investors would make the TWTR/TWTRQ mistake.
And so many of them were trying to get in on the action, they may have driven up the price all by themselves, with only minimal help from confused investors.
Confusion Lead to Mass Tweeter Stock Buy-In
Ticker confusion is still getting a lot of the official blame for the multiplication in Tweeter share prices: As of Friday, October 4th, the Financial Industry Regulatory Authority placed an official freeze on trading of TWTRQ stocks.
And on Tuesday morning, Tweeter Home Entertainment Group started trading under THEGQ. Just in case.
If this was a scheme by penny-stockers, it’s not quite “get rich quick.” Brett Eversole at Stansbury Research estimates that a penny stock player could put $1000 into Tweeter, and maybe see $8000 out. But that’s still $7000 lost by investors who didn’t do the research.
Due to all the publicity surrounding Twitter’s IPO, it’s more likely to attract first-time investors than other companies would, and if you’re new to the stock market you need to do your homework. Always name-check the company whose stock you’re buying and make sure it’s the investment you really want.
What do you think about Twitter’s IPO and the Twitter/Tweeter confusion? Do you have any stock tips to share? Tell us in the comments.