How I Will Play the Twitter IPO - Investment Ideas
September 17 2013 - 11:15AM
Zacks
How Will I play the Twitter IPO?
A recent filing with the Securities and Exchange Commission was
done so on a confidential basis. It was an S-1, the filing form for
an initial public offering and the subject company was twitter.
Twitter will disclose its financials shortly before it heads off
to a road show, but that shouldn't happen until we are in November.
The likelihood of a late November or early December first trade
seem quite strong.
How will I play the IPO? Well I am not the best client of
Goldman Sachs and few people are, but I can still find a way to
play the IPO right now and look at how a portfolio manager might
view it as well.
The Venture Capital Route
GSV Capital
(GSVC) is one of the top Twitter plays, but it
probably isn't the best. The company is a closed-end management
investment company, which is a long way of saying that it acts like
an venture capital firms. It holds shares in several private
companies and makes its own shares available to the
public.
Often times, a closed-end firm
like GSVC will end up consistently offering shares to the public in
hopes of raising more capital that it can then invest in early
stage companies like Twitter. That makes a long term investment in
these companies a difficult prospect for many investors and the
dilution will make it hard for those stocks to achieve a Zacks Rank
#1 (Strong Buy) or #2 (Buy).
To drive home the point about
what is going on at GSVC, skip ahead to 22 minutes mark.
On the positive side, GSVC hold
about $37.6M worth of Twitter stock and that translates to 15% of
the total investable portfolio for the company. They also hold
interests in Dropbox and Coursera.
The ETF Route
Global X Social Media Index ETF
(SOCL) is another route that investors might want to
take if they are not in line to take part in hot issue IPO's
through they brokerage. This spreads the risk out a little more
than just owning the stock of one company, but it doesn't give you
full diversification.
what you also get is a couple
dozen other Social Media names, with the top two names (in terms of
% of the index) being from Asia. That may not be the ideal risk
quotient that you are looking for, but there is little doubt that
Twitter will be added to this ETF as soon as it can.
This ETF carries a Zacks Rank of
3 (Hold) and the ETF Risk is "High.:
How A Portfolio Manager Will
Look At It
Facebook (FB) and
Yelp (YELP)
are two of the prominent names in the social media space that are
likely found in the above mentioned ETF. They may also be names in
your personal portfolio. And if a portfolio manager has had the
ability to buy them (and wanted to beat the market) they likely
hold them too.
Facebook is a Zacks Rank #2
(Buy) while Yelp (YELP) is a #3 (Hold), but how is the portfolio
manager going to look at each with a week or so to go before the
Twitter IPO?
Portfolio Managers have many
choices, but ultimately it’s a decision of buy, hold or sell. Will
they allocate more of the current portfolio to social media stocks,
and run the risk of being overweight a risky sector of the market?
More than likely, they will look to sell a portion of most of the
other social media names (like FB and YELP) but will want to hold
the ones that hold the most future potential.
Given the recent large moves in
both names, FB and YELP might present smaller investors with a
chance to take some profits and allocate some of that cash into a
new name like Twitter. This strategy could play out for smaller
investors, but could be an opportunity for those looking to add to
existing positions.
Summary
Twitter is going to be a hot
issue. There are a few ways to play it right now, but they also
carry a high degree of risk. Alternative social media names have
had a big run, but some investors make look to reduce position
sizes to avoid being overweight in a risky sector of the market.
But how will I play it? Easy, I will buy it about 30 minutes after
it first trades.
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Brian Bolan is a Stock
Strategist for Zacks.com. He is the Editor in charge of the Zacks
Home Run Investor service, a Buy and Hold service where he
recommends the stocks in the portfolio.
Brian is also the editor of
Breakout Growth Trader a trading service that focuses on small cap
stocks and also carries a risk limiting strategy.
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FACEBOOK INC-A (FB): Free Stock Analysis Report
GSV CAPITAL CP (GSVC): Get Free Report
GLBL-X SOCL MDA (SOCL): ETF Research Reports
YELP INC (YELP): Free Stock Analysis Report
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