Twitter IPO Today

Twitter, the company famous for limiting your interactions to 140 characters or less goes public today.  Perhaps learning from the lessons of Facebook, another company with a ridiculously high valuation and who lacked a proven revenue stream, they are listing on the NYSE rather than the NASDAQ, perhaps hoping to avoid a repeat of the technical problems that occurred during the Facebook IPO.

An IPO is an Initial Public Offering, despite the moniker the real trading of the stock is not made open to the general public, and options to buy or sell the stock are restricted to institutional clients and their top customers.  IPOs work in a similar way to a stock option grant in some ways – if you are popular enough with your bank or broker they will allow you access to a fixed amount of the stock to trade with at the offering price.

I discussed accessing IPOs with wealth managers at Citibank and HSBC.  Both were willing to cut me a piece of the pie, and actually HSBC was more fluffy with their numbers, but seemed generally more open to letting me in.  Citibank explained for me to have access to IPO issues I would need to do the following:

• Provide them with $100,000 in Fees each year from my brokerage account – that is FEES not Assets Under Management!
• Take the Bad with the Good – no cherry picking.  If I want in on the IPO action I need to buy in and trade every offering, not just what I perceive to be good deals…

What I would get in return for this would be access to the trade at the real price they set at IPO, which is currently tagged at $26 per share.  Should I play the game I could access say, 10,000 shares of this for $260,000 and watch as the people who don’t have my banking relationships fight for a piece of the action.  It is not uncommon to see an IPO stock raise up 5x or more on the first day of trading, and I wouldn’t be surprised at all to see Twitter trading at over $100 a share today, and half of that tomorrow.

The IPO game is stacked against the individual investor, and the restrictive nature of the issuing makes it physiologically desirable, please exercise extreme caution in your trading on such stocks.

The profit or loss you will see from Twitter (probably profit if you can get in low and get out quick) will be based purely on mindless buying, not based upon fundamentals at all.  Twitter has still not found a successful way to monetize, their ads are clunky and obvious and simply aren’t profitable.  Last quarter, their best to date saw revenues of $168 Million USD (double the previous quarter) losses in Q2 were $21.6M and rose to $64.6M so they brought in their best quarter of revenue, and managed to triple their losses on it…

I’m not getting involved in Twitter, if you decide to make sure it is only with ‘play money’.  Assign 5-10% of your total stock market investment to an account where you can speculate, the rest keep well diversified.  Within your speculation sandbox feel free to have a punt on stocks like this, they have no logical reason to make you money.

Lastly, should you go against my sage advice and want to trade Twitter, you must use a limit order the volatility of this stock means that if you set a market buy thinking it will trade at $26 you might well find yourself just minutes after the open buying in at 3-4x your expected price.  You simply cannot execute Market Orders on trades like this, it is financial suicide.  And don’t even think of doing this on Margin.  If you don’t have a play money account that you are willing to decimate, this game is not for you.

Twitter, watch it soar like an Eagle, then end up like a canary in a coal mine.