Brokers, financial advisors, and wealth managers are a recalcitrant bunch, suddenly, after having gotten their manicured fingers burned on a few super-hyped IPOs, and now they just refuse to get exuberant about the Twitter IPO. At least that’s what they indicated in a Reuters survey.
Of the 29 respondents – OK, that’s not a huge sample size and not the most glaringly scientific survey – only one said he’d recommend to his clients that they buy Twitter shares at the IPO. And he’d recommend it only to certain clients. But 23 of these gurus said they would not recommend the shares at all. And five of them, ominously, said they’d wait – and if shares plunged after they started trading, as the Facebook shares had done, they’d swoop in elegantly and grab them at a big discount.
They may have their reasons, other than the Facebook debacle. Twitter announced last week that it would price the offering between $17 and $20 a share, which would value the company at up to $11 billion and could raise up to $1.25 billion after underwriting fees. Big numbers for a company whose losses jumped 89.4% to $133.9 million for the first nine months of this year, compared to the same period last year, on $422.2 million in revenues, up 106%. When revenues double, you’d think losses would go down. Not at Twitter.
Like all companies in that space, Twitter has a bifurcated revenue model: selling ads and selling information about its users. The latter, “data licensing,” brought in $47.3 million so far this year. It includes all manner of personal and click data from its users, gleaned from their tweets and retweets and from other behavior as they’re being tracked across the internet. Twitter is part of Big Data – the industry of collecting, storing, and analyzing every bit of personal information generated every second of every day, just like Facebook or the NSA. It’s one of the most vibrant industries in the US, particularly here in San Francisco and Silicon Valley. Not a bad space to be in for Twitter, though its users might be less enthusiastic about it.
But it won’t be enough. Even analysts at Bank of America – one of the underwriters, and thus obligated to be optimistic – foresee losses through at least 2015. That’s a lot of years of red ink. And they’re seeing slowing revenue growth: from 98% in 2013 to 54% in 2014, down to 31% in 2015.
On the institutional side, “sentiment still remains unclear,” Reuters reported, but the road show has started, and they’re out there running around the country hyping the IPO to institutional investors, and industry analysts are hoping that large-company mutual funds will show up with a voracious appetite for the shares, funds that are in everyone’s portfolio. Which Betsy Billard, a Private Wealth Advisor at Ameriprise, explained this way: “My clients will own it – whether they want it or not.”
And the sentiment of individual investors? These are the intrepid souls who earlier this month mixed up Twitter’s ticker TWTR with TWTRQ, a penny stock left over from Tweeter Home Entertainment Group Inc., a consumer electronics chain that had gone bankrupt in 2007 and has disappeared. Nevertheless, these intrepid souls, who can click faster than they can think, whipped that defunct stock into froth, and it soared by over 1,000% in no time, before it all collapsed again. Days later, TW Telecom (TWTC) shot up ten-fold to $300 in moments, before NASDAQ cancelled the trades. Exuberance for Twitter seems to be boundless in these corners of the market. And like love, it seems to be blind.
Reuters’ mini-poll of individual investors picked up on it too. Of the 225 respondents, 57% said they’d want to buy into the IPO at the current price range. But doubts remain: 28% said they’d rather not. And 15% said they’d wait and see. They too had learned some kind of lesson from the Facebook debacle. They want to see how it goes after the shares start trading before jumping into the fray. Maybe they’re hoping to pick up some shares a few days later at half off.
Twitter’s IPO is scheduled to price on November 6. The shares will likely begin trading the following day. That’s when the surveys stop and the fun starts. Nosebleed valuations abound in that space. Facebook has a P/E ratio of 209, LinkedIn of 656. Twitter won’t have a P/E ratio because it will be losing money for years to come. Or rather its P/E ratio will be infinite. These kinds of magnificent numbers remind me of all the fun we had back during the dotcom bubble before it blew up. The glory days are back. Thank you halleluiah, Fed!
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