ipo – Profitable Investing Tips

Twitter Stock Gives a Tremendous Tweet

Thu, 07 Nov 2013 18:39:36 +0000

Twitter seems to have learned from the Facebook IPO flop and priced its stock reasonably for its initial public offering. The stock was priced at $26 for the IPO and opened at $46. By mid-day it went up and down and settled in the $45 range. So, as twitter stock gives a tremendous tweet, we wonder just how valuable is the company. After all it has been losing money. With a market valuation of over $18 billion that gives a value of nearly $80 per user. But the question as twitter stock gives a tremendous tweet is if the company will make money and if the stock will go higher or lose ground.

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Social Media Companies and Profits

Social media is very popular but the rap on the companies that provide these services is that they do not necessarily make money. That was the issue with Facebook which went high and then tanked on the first day. Many criticized the company for setting its IPO price too high but people still bought it on the promise of growth. Then, when the stock fell, everyone rushed for the exit as market sentiment went against the stock. Fundamental analysis of Twitter tells us that what they have going for them is a popular way to communicate via social media. They do not own large tracts of land, factories, or parts of other companies. Thus they have little or no margin of safety and their price is solely based on the expectation of growth and the hope that when they grow they find ways to make money as well.

Is a Social Media Platform a Good Investment?

Before Facebook went public we asked if Facebook would be a good investment. The question is how do you monetize social media? Basically you put ads on the sites. However, it is much easier to put ads on computer screens than on hand held devices. The companies that make money in this realm will need to keep attracting large followings for their services and find ways to put ads in the face of the user. When this happens folks will pay the likes of Twitter for the use of their platform for advertising. While Twitter stocks gives a tremendous tweet today on opening it will do better over the years as it grows and gets a handle of how to monetize itself.

Investing in Growth Stocks

Many investors invest solely in growth. When a company settles into a solid position in its market niche but ceases to growth these folks leave. These investors have a good sense of both fundamentals and evolving market sentiment. As it opens and Twitter gives a tremendous tweet the current fundamentals are weak. If one believes that the company can grow and increase revenue the intrinsic value of the company may well be more than where it is trading at today. Belief is the key. Market sentiment is based on what investors believe about the future. So long as investors believe that there is great growth potential in Twitter they will support the stock price and even bid it up. But, once investors believe that any growth potential is exhausted they will sell in droves and send the Twitter stock price plummeting. If your goal is to make money in growth stocks like Twitter you need to know the fundamentals and watch the market closely as a spooked market can fall rapidly.

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Facebook IPO Flop

Mon, 21 May 2012 11:00:59 +0000

In light of the recent Facebook IPO flop we revisit the popular social media site. In February we posed the question, “ Is Facebook a good investment ?” It was our opinion then and our opinion now that Facebook will provide value for long term investors only if it finds effective ways to monetize its name and technology. We also noted that when floating an IPO those in charge commonly set the price so that the stock is likely to go up on the first day of trading. That was not the case when Facebook went public. In fact it appears that it was a Facebook IPO flop. The IPO was offered at $38.00. The stock opened promisingly at $42 a share and promptly fell into the $38 range. After buying by the investment bankers who ran the IPO, the stock rose back as high as $41.68 before eventually ending the trading day at $38.27.

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Who Won?

The IPO was eminently successful for Facebook. Just recently a figure in the $26 a share range was bandied about for a likely IPO price. The investment bankers pushed this up to $38 and Facebook realized $16 Billion. And the investment bankers won with their fees and commissions. However, anyone now holding Facebook stock may be wondering how to unload what may well be an overpriced stock.

What Happened?

In the hype that preceded the Facebook IPO flop the IPO was expected to price the company in the top ranks of American Corporations. At the same time the issue of whether or not advertisers can sell anything via Facebook came up. General Motors quit placing ads on Facebook because they were not getting any sales. During the same time frame the possibility of a Greek financial collapse reemerged and possibly excessive austerity measures threaten to drive Europe into recession. Facebook and its investment bankers may well have been greedy, raising the price of the IPO in the face of bad news. In the end the bankers made money and Facebook made lots of money and anyone holding the stock lives in fear of a worsening Facebook IPO flop.

What Is Next for Facebook?

Facebook remains an incredibly popular social media site. But it may not be as strong on handheld devices as it is on personal computers. As we noted in our “Invest in Hewlett Packard” article some months ago people are buying fewer personal computers and using hand held devices such as tablets for their emails and chats. If that is all one does a tablet makes more sense than a PC. But, if Facebook does not do as well on tablets it may lose market share to other, newer social networking sites. And there is the issue of sales. In the end the Facebook IPO flop is because big, serious investors do not see how Facebook can successfully monetize its large following. It may continue to be very popular but not all that profitable. If that is the future that Facebook saw, then it was good reason to pull some cash out of the operation by way of an IPO. No one can blame Facebook for cashing in on their success by providing a public means of trading shares. The problem for investors is whether the Facebook IPO flop is a measure of things to come in which the stock will progressively fall to a more realistic price range. Those who do their fundamental analysis apparently think that the stock is priced too high. As usual we are not suggesting that one invest in Facebook or that one ignore the stock. Rather our point is to provide an example of thinking through an investment.

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Is Facebook a Good Investment?

Tue, 07 Feb 2012 17:20:06 +0000

Is Facebook a good investment? The social media company is expected to announce that it will go public with an initial public offering, IPO, valued at around $5 Billion. If you are a big institutional investor and favored client of Morgan Stanley, who will be handling the IPO, you get to buy Facebook stock at the stated IPO price, before the stock goes public. If you are one of the rest of us you get to buy Facebook stock through your broker or on line after the stock goes public. Is Facebook a good investment for the large institutional investor that buys at the IPO price prior to stock trading? Typically it is. There a couple of factors here. One is that companies like Morgan Stanley engage in sophisticated technical and fundamental analysis of the companies they will offer at IPO. They commonly set the IPO price so that the stock will go up instead of down on the first day. They also try to set the IPO price so that it does not go up too much the first day. After all, the client, Facebook, wants to raise $5 Billion or whatever the amount will be. If they can get more they will but they do not want to issue $5 Billion worth of Facebook stock one day, see the stock price immediately triple, and see that people are paying $15 Billion for the same batch of stock the next day.

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If you are one of the rest of us is Facebook a good investment? To answer this we might want to ask ourselves just why this private company is selling stock. First of all selling stock allows a company to raise money without borrowing or drawing down on its cash reserves. However, the private owners of the company are giving away part of the value of the company when they do so. Do they need money? If so is the money for
R&D or to pay off loans? Just how well is the company doing? Is the money they intend to raise from the IPO going to key employees as a reward for their hard work in building the company? Do these employees have stock options that they have been promised? If so, many key Facebook employees could get rich, just as others did with Microsoft and other tech companies. Will employee stocks be issued separately or as part of the IPO. Will employee stock options dilute the value of Facebook stock? Is the money simply going into the pockets of the founders of the company? Everyone likes a little cash and maybe this is a nice way for the current owners of Facebook to diversify a little and not put all of their eggs in the “Facebook basket.” How to make money through investments is often to take your profits every so often and diversify a bit. This may be what the guys at Facebook are going to do. So, is Facebook a good investment for you and me? It will be if the stock price goes up and stays up. It will be a good short term investment for those who accurately assess fundamentals and market sentiment, buying on downturns and selling after rallies. Is Facebook a good investment in a long term? Microsoft made its early stock investors a lot of money before its stock price leveled off. The question for long term investors is just what Facebook can do to further monetize its name and technology. Stay tuned.