It’s destined to be one of the biggest IPOs in U.S. tech history.
And with good reason.
This company has only been around for six years, but its social-messaging technology is already an indispensable part of everyday life.
The messages are “tweets.”
And the company is Twitter Inc.
The stock offering is expected to raise $1 billion when it takes place – perhaps as early as this month. But retail investors will have a really tough time getting a piece of the deal.
But don’t let that get you down.
You see, I’ve uncovered a “backdoor” way to play the Twitter IPO – and this investment has absolutely dwarfed the stock-market return of the past year.
Avoiding the “Facebook Effect”
The Twitter story is a truly remarkable tech tale.
Confined to just 140 characters, short bursts from this fast-growing service have become an integral communications tool for the news media, businesses and government agencies.
The usage numbers are stunning: 215 million active users send out more than 500 million “tweets” every day. That’s nearly 6,000 messages per second.
Given the earlier fiasco with the IPO for Facebook Inc. (NasdaqGS: FB) in May 2012, some investors believe Twitter will suffer the same fate.
I couldn’t disagree more.
Facebook’s train wreck of a stock debut occurred because the company and its investment bankers made two stupid mistakes. First, they got greedy and priced the stock at roughly $38 a share – when a lot of very sexy IPOs at the time were commanding prices of half that amount or less.
Second, and more to the point, the Facebook deal team failed to address one of the hottest trends in high tech today – mobile computing.
(Facebook has recently recovered and is trading at around $50 after it has now more consistently addressed how it will make money from its mobile offering.)
Twitter won’t repeat these egregious miscues. The company is taking care to accurately price the offering. And company execs have made mobile a key part of the company’s message.
Just last month, Twitter agreed to buy the hot mobile ad exchange firm MoPub.
All those factors – and others – will have a definite effect: Demand for Twitter shares will likely outstrip supply by a wide margin, making it very tough for retail investors to get in on the action.
My Best IPO Story
I understand IPOs, having been an insider on a deal myself. Several years back, a startup I was involved with went public. As an “insider,” I was granted rights to the shares before they began trading with the public.
As a result of that “insider’s advantage,” I made enough money in just a few hours to finance a remodeling project on my home. But most retail IPO investors have a far more difficult time of it. You see, you literally have to monitor the market pretty regularly the week the stock is set to begin trading.
By definition, that means you cannot put in a pre-market order. Often the best you can do is put in an order to buy shares an hour or less before they begin trading.
And if you put in a market order you run the risk of paying that day’s highest price only to see the stock soften later in the session – meaning you end up being “upside down” on the trade.
Which leads to a simple question: Why go through all that angst, frustration and risk of loss for a company that is not the best stock in the social networking space?
The Real Social Media Leader
That honor belongs to a firm that has utilized a focused, commercial approach from the very start. The clear leader in this sector is a firm that finds itself used by millions of business people all over the United States.
In fact, every headhunter and corporate recruiter I know says this Website is absolutely vital to the way they do their jobs.
Now that’s a powerful company…
Of course, I’m talking about LinkedIn Corp. (NYSE: LNKD).
The company’s Website is one that I use on a daily basis. I use it to connect with industry colleagues, key sources, co-workers here at Money Map Press, and executives I know from my years here in the Silicon Valley area.
I’m talking about guys like Dave DeWalt, the CEO of cybersecurity firm FireEye Inc. (NasdaqGS: FEYE) and Scott McNealy, founder and former CEO of Sun Microsystems.
I’ve spoken with both of them in the past and like to keep abreast of what they’re up to. And just a few weeks ago, I met with one of the world’s leading experts on sensors. Two days later, we connected via LinkedIn.
Clearly, I’m a big fan of the company.
And tech investors are, too.
In its most recent quarterly report, LNKD said it sales surged nearly 60% on a year-over-year basis. And profits jumped by nearly one-third.
Over the last three years, LinkedIn has had a sales growth rate of 98% and an earnings-per-share growth rate of 110%. No wonder the stock is up more than 100% over the past year.
And one thing is certain: When Twitter goes public, and the offering is successful, it will refocus investor attention on social-media stocks in general.
And the best of those stocks will get a major boost.
And that includes LinkedIn.
That’s why LinkedIn is a direct play on Twitter.
But it’s not the only play.
And there’s one you really need to look at.
The Ultimate Play on Twitter
One comment I get from a number of you on a regular basis is that you’re turned off by high-priced stocks. As I’ve said before, the price is really irrelevant: A 40% gain on $5,000 invested in a $500 stock is exactly equal to a 40% gain on $5,000 invested in a $40 stock.
And, as you know, we try to focus on stocks that have big-profit potential.
Even so, I know from those comments that many of you may be turned off by LinkedIn’s price of more than $230 a share.
That’s why I think investors would do well to take a look at what I believe is the ultimate way to own social media stocks for a lot less money.
The Global X Social Media Index ETF (NasdaqGS: SOCL) takes maximum advantage of this trend. So far this year, SOCL has gained 54% — 3.5 times the 15.6% gain of the U.S. Standard & Poor’s 500 Index.
Besides LinkedIn, SOCL holds:
- Yelp (NasdaqGS: YELP), up 271% this year.
- Yandex NV (NasdaqGS: YNDX), a Russian player with gains this year of 66%.
- Angie’s List (NasdaqGM: ANGI), up 39% year-to-date.
- Sina Corp (NasdaqGS: SINA), the Twitter of China with gains over the same period of 73%.
- And Facebook, up more than 80% this year and now up about 30% from its $38 IPO price.
With SOCL you can ride the social-media trend for just $20 a share – or less than 10% the cost of LinkedIn, one of its biggest holdings.
This is one of those great foundational plays that provides specialization and diversity within a hot tech sector.
And I believe that it also makes you a better – and smarter – tech investor.
You see, an ETF like this one gives you a shot at the windfall profits that a hot investment opportunity like social media can create.
But it does something else, too: It educates you about the opportunity itself, about the market and about the companies in it.
In essence, the ETF creates a “foundation” investment that gives you good growth at risk levels that are less than you’d face with individual stocks. But it also gives you enough insight about the sector that, if you wanted, you could then go out and add an individual stock or two, as well.
And because you now “know” this sector, the odds are good that you’ll recognize the best candidates to buy, and the best time to move, when you decide to make such a bold foray into individual stocks.
And you can’t put a value on that.
See you next week.
Oh, and by the way, if you’re on LinkedIn, let’s connect… You can also connect with me and Strategic Tech Investor on Facebook right here.
[Editor’s Note: With the interest in the Twitter IPO, I thought you’d find this to be a timely and intriguing column. Even if you opt to “wait and see,” just think of the attention you can command at your next work staff meeting, club get-together or dinner gathering when you tell folks about the “secret way to play the Twitter IPO.” If you do this, be sure to drop me a line and share your tale. In the meantime, thanks for the comments, concerns and interests that you shared earlier this week. It helps to know what you’re thinking about. Keep the comments coming.]