Tuesday, November 5, 2013

Who Is Right on Twitter?

Who Is Right on Twitter?

It was a quiet Monday morning.  I was waiting to read the SAC settlement with the Department of Justice.  Within moments of each other, two related items appeared, although not on my Twitter feed.  The Associated Press and MSNBC announced that “Twitter Faces Skeptical Investors.”[1]  This startling announcement was followed by, “Twitter Increases Its Price Ranger for IPO”[2].   Clearly Twitter’s roadshow is going well, because they’ve decided to increase the target price from $17-$20/share to $23-$25/share.
Target (1997)
So who are AP/MSNBC’s skeptical investors?  I decided to investigate.  The survey said that 36% of respondents thought Twitter would be a good investment and 47% disagreed.  I was impressed that 88% of the respondents had heard of Twitter.  I bet most politicians would die for that kind of public recognition.  So who was making a judgment on Twitter?  Turns out only 20% of the respondents have a Twitter account, and only 33% of them own any stocks, bonds, or mutual funds.  In short, the AP headline was misleading.  It might be more appropriate to say that 36% of the general public thinks that Twitter will be a good investment.

A quick aside before we return to Twitter.  I discovered by going to the last general question in the poll[3] that many of the respondents who owned financial assets are probably pretty good investors.  Forty-one percent of the people who own financial assets had not made any change in their 401(K) allocations in the last twelve months, and 64% had made two or fewer.  In other words, there seemed to be a fair number of sensible long-term investors in the sample.  However, three percent of the respondents reported making more than 25 changes to their 401(K) in the last twelve months.  This information wasn’t in the press release or any of the news coverage I found on the poll.

Should we dismiss the poll out of hand, because most of the respondents aren’t involved in the financial markets or Twitter?  I have a hunch that many money managers share the public’s skepticism, even though they will purchase shares in the IPO.  While the public may not be financially savvy or informed, they were asked a question that is not entirely germane to the IPO. Is Twitter a good investment?  Most of the investors who receive shares in the Twitter IPO will probably be selling within hours if not days.  In other words, they’re not betting on Twitter as an investment.  Rather, they’re wagering that demand for the stock will be large enough in the short-run, so someone else will buy the shares at a higher price.  Meanwhile the money manager will be able to deliver an out-sized commission to his favorite broker.  Undoubtedly there are more than a few investors who believe in the Twitter story and will attempt to accumulate shares for the long-term.  However, for the next few months Twitter’s stock will be in the hands of speculators.

Will Twitter be successful in the long run?  I don’t know.  But if you were asking me to make a two or three year commitment to the stock, I’d have to side with the AP poll instead of the professionals.

[1] http://hosted.ap.org/dynamic/stories/A/AP_US_TWITTER_POLL?SITE=AP&SECTION=HOME&TEMPLATE=DEFAULT

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