10/31/2013 7:15 PM ET|
Investors wiser ahead of Twitter IPO
Several wealth managers told Reuters that they would advise their clients to wait until after the IPO, and buy Twitter only if and when the stock tanks.
Unless you're one of those high rollers who run a mutual fund or a hedge fund, you probably didn't get invited to any of the stops on the Twitter Inc. road show, the obligatory show-and-tell by company executives in advance of an initial public offering.
That's OK. It's being called "the most eagerly awaited market debut since Facebook (FB)," and that ought to tell you all you need to know.
It doesn't look like the Twitter IPO will cause the same system-crushing frenzy, or the same horrible hangover, that Facebook's debut caused in May 2012.
In fact, it looks like the small investor is going to sit back and watch what happens to this one. After all, procrastination has worked out quite well for Facebook investors. After famously closing below its IPO price in May 2012, the stock just kept sliding, falling to a low under $19 last August. Since then, it has gained steadily, and is now above $50.
This time, several wealth managers told Reuters that they would advise their clients to wait until after the IPO, and buy Twitter only if and when the stock tanks. Others said they had not had any inquiries from clients about the IPO, and wouldn't recommend participating in it if they did.
In any case, individual investors may well own a bit of Twitter stock anyway, through their mutual funds or 401(k) investments.
Twitter executives have gotten some credit for keeping their expectations — and their offering price — modestly low.
The company has said it will sell 70 million shares at a price of $17 to $20 each when it launches the IPO, as early as Nov. 7. That would value the company at about $11 billion, less than the $15 billion some analysts were expecting. The New York Times suggests that Twitter may still raise the price, if it finds "exuberant demand" in the road trip.
There's also little chance of the technical glitches that enraged investors on Facebook's big day.
Some of the techies who work for the New York Stock Exchange devoted last Saturday to a test run of the initial public offering of Twitter shares, in advance of the actual event.
The test apparently went off without a hitch. Maybe they can rub the noses of their rivals at the Nasdaq in that small victory.
But it seems that the Facebook experience caused an epiphany of sorts for the small investor. In short, we've wised up.
For those who haven't, Forbes.com has an analysis of the actual performance of recent IPOs. It offers pretty definitive proof that the famous first-day "pop" in price for an IPO benefits the company's founders and early investors, and its underwriters, but not so much the retail investor.
That was pretty much what happened with Facebook's stock last year — except that even institutional investors lost about $500 million on the IPO, at least short-term, due in part to malfunctioning at the Nasdaq.
In Twitter's case, there's also the plain fact that the company isn't making money yet, having moved only recently into monetizing mode.
In an updated filing with the Securities and Exchange Commission earlier this month, Twitter said its revenue more than doubled in the third quarter, to $168.6 million in the third quarter, from $82.3 million the year before. Its net loss rose to $64.6 million, from $21.6 million.
The company is continuing to spend heavily on sales and marketing, and on research and development, and may not start actually turning a profit until 2015, according to one of the underwriters of the stock offering.
According to Bloomberg News, much of that research and development cost is for creation of apps that complement Twitter. The company wants to own those apps, and the advertising that is carried on them, rather than cut revenue-sharing deals with external app developers.
Twitter's strength is in its 230 million users, and its growing reputation as a place to make and break news.
Collecting Twitter followers is becoming something of a competitive sport for anyone with anything to communicate. This week, Pope Francis tweeted his gratitude to his followers, after passing the 10 million mark. As The Guardian points out, that's triple the number of his immediate predecessor, but a tad fewer than Kanye West has collected.
It's also way fewer than the number of followers for the three most popular names on Twitter. Justin Bieber, Katy Perry and Lady Gaga each have more than 40 million followers.
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