Social-networking service Twitter (NYSE:TWTR), set to debut on the New York Stock Exchange Thursday, has at long last priced its IPO at $26, valuing the company at $14.4 billion. This IPO has generated a lot of buzz, and several people have asked me whether Firsthand Technology Value Fund (NASDAQ:SVVC) is a good way to get involved in the offering. Authors have made cases for why it is a worthwhile investment, and others have stated that shareholders are being diluted and not realizing the value of the company. Could both be right? Yes.
Firsthand Funds is run by Kevin Landis, a veteran technology portfolio manager with experience dating back to the 1990s. Its performance has been hit or miss over the years, but it has successfully attached itself to social media with positions in Facebook, Twitter, and formerly Yelp, which has served it well over the last year.
If the IPO goes as expected, very few retail investors will get their hands on Twitter shares at a price anywhere near the $26 that direct participants in the offering will pay. But will investors who paid less than that for shares of Firsthand Technology Value get the benefit of any rise in Twitter's share price?
If you want to participate, this is one of the few games in town. But what are you getting for the $23.79 needed to purchase one share of SVVC?
How much of an impact will Twitter have?
A look at the Oct. 18 portfolio disclosure shows the following:
- Cash: $13.34
- Facebook: $3.53
- Twitter: $2.87
- Other private companies: $6.60
- Total net asset value: $26.34
So there is exposure to Twitter, but you aren't going to get rich on a blowout IPO, even if the share price were to double.
That said, is it worth a trade? I think so, and here's why.
1. Firsthand Technology Value Fund is trading at 6% below its NAV
At this time, the fund should be nearly at parity. Despite Facebook CFO David Ebersman's comments that the social-media giant saw fewer teenage users during the quarter, Facebook's numbers came in better than expected and could continue to grow in future quarters.
2. Oversubscribed IPO
The oversubscribed IPO bodes well for a higher share price for Twitter once the stock trades on the public market. Using figures from Firsthand's valuation of its top positions as of Sept. 30, I calculated that the fund is valuing its Twitter position at about $24.50 per share. For every $1 per share that Twitter actually trades above that, the fund should see its net asset value rise by about $0.11 to $0.12.
Not every trade has to be a home run
I'll take steady doubles all day. This isn't a trade to allow you to retire early, but considering that we have a defined catalyst and an expectation of price appreciation, I feel comfortable buying it here, even if the upside is only 10% to 20%.