Covestor managers weigh in on the Twitter IPO

By CovestorCovestor

Investors are giddy over Twitter’s IPO after the social media firm raised the price for the shares amid reportedly strong demand from institutions. The stock is expected to debut on Thursday.

Charles Sizemore, who manages the Sizemore Global Macro portfolio on Covestor, told the E-Commerce Times that Twitter might end up being more attractive as a short-term trade than a buy-and-hold stock.

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“Twitter’s IPO is the third-most-expensive IPO in U.S. history, after Palm and Facebook,” he said in the report.

Barry Randall, founder and chief investment officer of Crabtree Asset Management, also weighed in on the IPO. He manages the Crabtree Technology portfolio on Covestor.

Randall told the E-Commerce Times that the new price range is serving as “kind of a dog whistle to the investment community.” Randall added:

This action implies that the deal book was at least 10 times oversubscribed at the lower price range, he said, and indicates that interest in the deal was strong enough to justify raising the price range.

“Of course, some investors who put in bids with the underwriters may now decide that $23 to $25 is simply too high a price and therefore they will drop away,” he said. “But most will likely stay, especially since the number of shares being offered did not change.”

The bottom line is that unprofitable Twitter, which was going to go public at a very high price-to-sales ratio of 18, is now attempting to do so at a stratospheric 24, Randall said, “when profitable competitors like Facebook and LinkedIn trade at price-to-sales ratios of 18 and 20, respectively.”

If Twitter and its bankers “manage the process correctly, the stock will go up just a little after it prices on Thursday morning,” Randall predicted. “But as Facebook’s IPO showed, the mere hint of something wrong, either with demand or with the execution of the IPO transaction itself, may be enough to cause a run for the exits.”

Randall and Spencer Grimes of Twinleaf Management will offer their outlooks on Twitter and the IPO, this Thursday, Nov. 7, in a webcast. Grimes manages the Small Cap Value on Covestor. This is an exclusive webinar where you will hear two talented portfolio managers on Covestor share their analysis of this highly-anticipated market event. Each brings a unique perspective on the Twitter IPO and what it has in common with Facebook, LinkedIn and other recent initial public offerings in the technology sector.

Click here to register for the webinar.

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