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Don Dion (donalddion@gmail.com, @DRDInvestments) is the owner and Chief Investment Officer of DRD Investments, LLC, based in Naples, FL. and Williamstown, MA., a family office focused on managing a long/short hedge fund, real estate assets and various other financial assets for the Dion family.... More
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  • Twitter IPO Will Fly 0 comments
    Oct 27, 2013 3:01 AM | about stocks: BRK.B, FB, GRPN, ZNGA, TWTR

    Twitter (NYSE:TWTR) burst onto the scene at a time when social media was still a novelty, and many people doubted whether there was room for yet another site for personal interaction. However, TWTR has become one of the foremost Internet sites, drawing tweets from such diverse personalities as Pope Francis, Lady Gaga and Warren Buffett (NYSE:BRK.B)

    Twitter came into being a mere six years ago, designed by Jack Dorsey and Evan Williams. It offered users many of the same features as Facebook but with a fast-paced "micro-blogging" system that allowed people to interact both immediately and on-the-go. The popularity of smartphones only increased its use and made "tweets" one of the primary means of communication for the Internet community.

    Today, Twitter has 230 million monthly users, and is one of the most quoted media site in media. Although many people use Twitter to stay on top of activities of their favorite celebrities, it has also become a force in the political realm. The 2012 election was instrumental in showing the power of its "micro-blog" feature, allowing users to comment on debate performances, question pundits' commentary and interact with others on a variety of topics.

    The IPO of this highly visible company has been awaited with some anticipation by investors. The site clearly has longevity and will be a force in American culture for some time, providing many opportunities for marketing to a broadly diverse population. In October of 2013,

    Twitter announced its intention to sell 70 million shares at $17 to $20 each, significantly lower than the company's expected value. Even in the middle range of that price, the company will bring in $10 billion along with what will be raised from the exercise of the options. The company has also recently moved up the pricing date to November 6th of 2013.

    Twitter has been showing considerable growth over the past months, making the low initial price a bit of a surprise to many of us. In August, the company valued itself at $20.62 per share, and analyst Robert Peck of Suntrust Robinson Humphrey already expects the stock to reach $50 a share by the end of 2014.

    The conservative offering appears to be a reaction to the ill-fated May 2012 IPO of Facebook (NASDAQ:FB), whose $38 stock immediately plummeted and remained below offered levels for some time before slowly recovering. The sluggish start of both Groupon (NASDAQ:GRPN) and Zynga (NASDAQ:ZNGA), increased doubts about success of Internet IPOs. Twitter is taking a more cautious approach with its lower price, hoping investors will cast a more favorable eye on the offering at this level. See also http://seekingalpha.com/article/1738662-twitter-ipo-avoids-the-facebook-pump-and-dump

    CONCLUSION AND RATING
    Investors who have been waiting for Twitter to initiate its IPO will be happy to get allocations at the $17 to $20 level and we continue to rate the IPO a buy at that price range.

    Although the company has yet to make a profit, the site's continued popularity makes it a good bet for future gains in the price of the Twitter stock.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Themes: ipo-analysis Stocks: BRK.B, FB, GRPN, ZNGA, TWTR
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