By The Sizemore Letter<\/u><\/p>\n
This time last year, \u201csocial media\u201d was an expletive in financial circles. The Facebook<\/b> (<\/span>FB<\/a>)<\/span> IPO had long since gone down in flames, as had other new technology IPOs like Groupon <\/b>(<\/span>GRPN<\/a>)<\/span> and Zynga<\/b> (<\/span>ZNGA<\/a>)<\/span>. At this point last year, Facebook, Groupon and Zynga were off 55%, 83% and 85%, respectively, from their previous highs.<\/p>\n It seemed like a case of the emperor\u2019s new clothes. Social media stocks were surrounded by buzz and hype \u2026 yet they didn\u2019t have much in the way of profits.<\/p>\n Then a funny thing happened. In July, Facebook announced earnings that were much better than expected, and — more importantly — announced a surge in mobile ad sales<\/a>. Perhaps social media could<\/i> make money after all.<\/p>\n And this brings us to Twitter<\/b>, which is arguably the most anticipated IPO<\/a> since Google’s.<\/p>\n What should we expect from the Twitter IPO?<\/p>\n At this point, we can\u2019t draw a lot of conclusions about Twitter\u2019s revenues and profitability. Being private, they are under no obligation to disclose that information. The most credible estimates<\/a> I\u2019ve seen have the company generating $600 million in sales in 2013 and $1 billion in 2014.<\/p>\n What does that imply for an IPO price? It\u2019s far too early to say. Early estimates value the company at around $15 billion<\/a>. That would represent a price\/sales ratio of 15 based on expected 2014 revenues. That\u2019s expensive, but not unheard of for a tech IPO. As a point of reference, Facebook currently trades for 19.7 times sales.<\/p>\n The success of any investment — IPO or otherwise — ultimately comes down to the price paid. This is a topic we\u2019ll have to revisit as more details about the IPO are released. But in the meantime, there are a few points for us to consider.<\/p>\n First off, Twitter seems to have a more promising business model in place than Facebook did at the time of its IPO (and does today), in that it\u2019s building partnerships with corporate sponsors rather than simply viewing them as disposable, churnable advertising clients.<\/p>\n As an example, earlier this year, ESPN<\/b> and Ford<\/b> (<\/span>F<\/a>)<\/span> sponsored instant replay tweets during last season\u2019s college football bowls. And Turner Sports, the NCAA, AT&T<\/b> (<\/span>T<\/a>)<\/span> and Coca-Cola <\/b>(<\/span>KO<\/a>)<\/span> followed suit during March Madness<\/a>.<\/p>\n What are these relationships worth?<\/p>\n Again, it\u2019s too early to determine the exact value of the relationship. But this shows that corporations are becoming engaged with Twitter on a far deeper level than they are with Facebook, where their role is still limited to building a fan page and inviting viewers to \u201clike\u201d it.<\/p>\n Here are some other fun facts from the Twitter blog<\/a>: 95% of live TV conversation currently happens on Twitter, and half of all national Super Bowl commercials had hashtags on them this past year.<\/p>\n I find Twitter \u201chigh-fiving\u201d during football games to be obnoxious and distracting. I prefer to sit and watch the game with a cold beer<\/i> in my hands and not my smartphone or laptop. But I guess I\u2019m old school.<\/p>\n Still, while I have little interest in tweeting with complete strangers during a football game, the ubiquitous hashtags are proof of Twitter\u2019s emergence as the<\/i> medium of mass communication. It\u2019s also worth noting that Carl Icahn announced<\/a> his Apple<\/b> (<\/span>AAPL<\/a>)<\/span> purchase on Twitter \u2026 not Facebook.<\/p>\n So, how can investors without VIP access to IPOs get access to Twitter?<\/p>\n The easiest way is through shares of GSV Capital<\/b> (<\/span>GSVC<\/a>)<\/span>. GSVC is a publicly traded venture capital firm with stakes in several up-and-coming technology companies.<\/p>\n Twitter makes up about 15% of the portfolio, so GSVC is not a pure play by any stretch. But it\u2019s as close as most individual investors can get at the moment, and a successful Twitter IPO should cause many of GSVC\u2019s other holdings to rise in sympathy.<\/p>\n Prior to the Facebook earnings announcement, GSVC\u2019s shares had languished, and the stock traded at a large discount to its book value. You could effectively buy shares of Twitter cheaper via GSVC than buy buying them directly as a private placement. But as Facebook\u2019s earnings surprise has reawakened the animal spirits in the sector, GSVC shares now trade at roughly a 10%-15% premium to book value.<\/p>\n Does that make GSVC expensive? Not quite. GSVC\u2019s book value is a moving target, and its \u201creal\u201d book value would probably be a good 10%-20% higher if its holdings were to be repriced today.<\/p>\n This is a long way of saying that, while it might no longer be the screaming bargain it was, GSVC is by no means expensive if you believe the Twitter IPO will be successful.<\/p>\n Charles Lewis Sizemore, CFA, is the editor of the\u00a0Sizemore Investment Letter<\/a>\u00a0and the chief investment officer of investments firm Sizemore Capital Management. As of this writing, he was long GSVC.\u00a0Click here<\/a>\u00a0to learn about his top 5 global investing trends and get your copy of \u201cThe Top 5 Million Dollar Trends of 2013.\u201d \u00a0This article first appeared on\u00a0InvestorPlace<\/a>.<\/em><\/p>\n \n This article first appeared on Sizemore Insights as Twitter IPO: It\u2019s Exciting, But How Can You Profit?<\/a><\/p>\nTwitter IPO Buzz<\/h3>\n
How to Profit off the Twitter IPO<\/h3>\n