MorningWord 12/8/14: SubTweet – $TWTR

by Dan December 8, 2014 9:46 am • Commentary

Over the weekend, Barron’s felt the need to remind the investment community of the anniversary of the dot-com burst 15 years ago (read here). But they also wanted to let us know why “this time it’s different”.  Its actually a good read. There’s nothing particularly new in it after we’ve already heard many venture capitalists recently sound the alarm on private company valuations and cash burn. But if for nothing other than a sentiment standpoint, I was happy to see this cover at my front door Saturday morning:


When its all said and done I think it is safe to say that the most damage will in fact be done in private market valuations. But for mom and pop who have bought into new fangled social media and cloud plays in the public markets, stocks like Twitter (TWTR) and Pandora (P) certainly have the potential to be the poster-children for any broad decline in technology shares.

On the flip side, Barron’s also ran an article this weekend on how Google (GOOG) shares could rally 20%, suggesting that it could be (Google: Time to Buy the Stock).  Again nothing new here, and I would suggest if you are waiting for Saturday morning to get your most brilliant investment ideas every week, you may want to consider a different investment strategy. But again I find the sentiment interesting that while Barron’s is sounding the alarm on private tech market valuations they are getting behind one of the worst performing large cap internet stocks.  In fact, aside from Facebook and Yahoo/Alibaba, most large cap U.S. internets are down on the year:

AMZN down 21%

EBAY flat

GOOGL down 6%

LNKD flat

NFLX down 5%

PCLN down 2%

TWTR down 40%

It appears that public investors have already spoken in 2014, Facebook is the only social media site in the U.S. that can monetize their user base, and Chinese e-ecomerce and search (BABA, BIDU) are the few trends justifying large public valuations.

Will there be opportunities in the new year for some of these unloved names from 2014? Most certainly. But for those who think there will be some sort of bargain hunting m&a spree in stock’s like Pandora (P) and TWTR, maybe it’s time to think again when the smartest guys in the room think that the private markets are about to blow?

I stand by my comments on numerous occasions that if WhatsApp was worth $22 billion to Facebook (without any revenue) then TWTR’s $24 billion market cap is way too cheap given its scarcity value.  GOOGL has a real-time search problem, TWTR could fix that.  MSFT and YHOO have a social media problem, (I guess you could throw GOOGL in there too).

The point is TWTR would make strategic sense for any of those cash rich companies but owning a stock for potential m&a despite poor fundamentals and price action is not exactly a take it to the bank investment strategy.  I remain intrigued by TWTR’s attractiveness but I am not willing to buy stock at current levels. But I may consider a defined risk option plays into year end.