Twitter, Another Successful Goldman IPO

Sell-side analysts have been focused on the wrong things with Twitter, eyeballs and pageviews instead of growth and profitability. That changed today.

Feb 6, 2014 at 6:00PM

Another successful Goldman IPO. Goldman Sachs does a great job getting every possible dollar for a company it's taking public by dressing it up. They do a great job for the investors who are allocated IPO shares as they pop on the first day of trading. They also make a lot of money for short sellers, often less than a year after the first trade. The only people who don't benefit are the other 99.5% of America. My personal favorite of Goldman's IPOs before yesterday was A123 Systems in 2009. Priced at $13.50 a share, it closed the first day at $20.29...and closed yesterday at $0.12.

It almost seems their goal is to grow your net worth...into their net worth.

The biggest concern with Twitter (NYSE:TWTR) going public was that its best days are behind it. After last night's earnings report that seems like it could be the case. Twitter raised $1.82 billion in the IPO and the banking syndicate (their term, not mine) received 3.25%, or $59.2 million in fees. This is a hefty payday for getting the highest possible price for selling private company shares to the public.

MAUs hit a wall
The trouble in the quarter stems from the slowdown in monthly active users. This is the average number of people who are active on Twitter in a given quarter and are the potential consumers of the advertisements placed on its site. This number helps gauge how fast the platform is growing but it doesn't indicate how much revenue the company will make or how profitable it will be. That said, some derivative of this metric is what professional investors used to come up with a fair price for the stock. If that's the case, this is a real problem because the growth is coming to a screeching halt:


The second line in the model above shows how many more people are on it this quarter vs last quarter. In the December quarter, 9 million more people were active than in September. The problem, however, is that this growth is slowing quickly. 

Timeline views slowing causes concern but shouldn't
There was a second metric that is also causing concern among investors but it shouldn't. The "timeline views" declined sequentially and was brought up as a concern by sell-side analysts on the call, but this shouldn't be an issue because third party software such as TweetDeck creates a scrolling headline window that keeps a person from having to refresh their screens. Its these screen refreshes that increase the number of timeline views. On the call, management said that timeline views fell because new features connecting conversations in a more seamless manner required fewer page refreshes but that data point doesn't fit well into an excel spreadsheet so it will probably be forgotten.

These two issues should have almost no impact on long-term profitability for the company since advertisers only pay when users click through to their promotions. Twitter is still the only place that consumers go to connect with sports figures and celebrities on topics that you share an interest in and it isn't going to change because of a 20% reduction in the share price.  What should you do here?  Keep using and enjoying the service but don't touch the stock until "the professionals" figure out a new way to value this unique company.

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David Eller has no position in any stocks mentioned. The Motley Fool recommends Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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