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Stock Watch: Twitter

This week, the first publicly traded shares of Twitter (TWTR) will hit the market for the first time. There is a lot of buzz and excitement, and it’s our job here to see if we are #RunningWithTheBulls or #BearScared. Before we get into Twitter’s IPO, I think itโ€™s important to look at the space: both IPOs and social media sites. First, the IPO market has been on fire this year. FPX (an ETF of IPOs) has been up nearly 50 percent in the last year, and Twitter will hope to add to those gains. Other social networking sites like Facebook, Groupon, and LinkedIn have enjoyed gains averaging 100% over the last year. Again, Twitter hopes to enjoy the momentum that both of these spaces are enjoying.

1457668_10151691044501883_483529612_nThe actual company’s main revenue comes from the ads that you may or may have not noticed on your Twitter feed. To get into more detail, I think these ads actually work much better than Facebook ads do. Because you view retweets in the same way that you view the promoted ads, most people donโ€™t even notice that they are ads! A whopping 55% of people say they have never noticed promoted tweets. This helps to keep Twitter exciting despite ads and helps psychologically to make people think the ads were actually something posted by a friend, which is quite valuable.

Twitter is hoping to be profitable by 2015, but currently they are spending more to invest in their future. Currently, around 44% of their budget is in Research and Development, which is much better for a growth company than spending that on operating expenses. There is a lot of room for expansion and continued change for Twitter, which currently has only one-fifth of the users that Facebook has. Initially, Twitter was going to open around 18 dollars, but is now expected to price at around 24. We all remember the large drop that FB when there was similar excitement, but since Twitter is earlier in its product development than Facebook was, I think investors will be more forgiving of any potential unexpected problems that may come out with the IPO. Should be an exciting week no matter what happens.

Recommendation: buy

The Rockโ€™s portfolio:

Buys:

  • Samuel Adams Brewing Co. (SAM): up 20%
  • Facebook (FB): up 28%
  • Dunkin’ Donuts (DNKN): up 14%
  • Ford (F): down 1%

Shorts:

  • Tesla (TSLA): up 18% (if you shorted when it bounced up to 190)

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