Tag Archives: News event
by Liz Hester
The much-hyped initial public offering for Twitter is finished now that shares priced and made a lot of people rich on the first day of trading.
Let’s take a look at a small portion of the extensive coverage of the site’s first day as a public company.
Here are the basic facts from the Wall Street Journal’s Money Beat blog:
Twitter‘s highly anticipated trading debut was a success.
The social-messaging platform opened at $45.10 on the New York Stock Exchange Thursday morning, up 73% from the $26 initial public offering price. Twitter sports the biggest U.S. technology IPO since Facebook Inc. went public 18 months ago.
Twitter’s IPO comes at a time when the broader market has been doing quite well. The S&P 500 has risen in 16 of the past 21 trading days. It is up 8% over the past two months and has risen 24% this year.
Twitter shares finished at $44.90, up 73% for the day.
The Heard on the Street column had a great story about Twitter’s valuation and how to look through all the options, warrants and other shares to figure it out:
After pricing late Wednesday at $26, shares of newly public Twitter opened at $45.10 Thursday. According to most financial databases, that means the micromessaging service has a market value of $25 billion. That is open to debate.
Twitter’s initial public offering, like Facebook‘s FB -3.18% before it, provides a window into why it is crucial for investors to focus on diluted share counts and stock-based compensation when valuing highflying social media and tech companies. Failing to do so can lead investors to pay far more than they realize for a stock, a particularly big risk in Twitter’s case given its heady valuation.
Twitter’s $25 billion market-value figure is based on 555 million shares outstanding—the headline number in Twitter’s IPO filing. But such basic share counts don’t take into account options, warrants and restricted stock. Altogether, Twitter has 150 million such shares, according to its IPO filing, bringing its total share count to 705 million.
Another adjustment is necessary for options and warrants. When those are exercised, Twitter will receive cash equal to the number of options multiplied by their weighted average exercise price. For the purpose of analysis, investors typically assume a company will reinvest the combined proceeds into buying back shares. That lowers Twitter’s diluted share count slightly to 704 million.
But that boosts its market value to $31.7 billion—or $6 billion more than its capitalization based on a basic share count. This only intensifies the pressure on Twitter to demonstrate that it can bring its revenue in line with its lofty valuation, while emphasizing how frothy the share price is following its first-day gain of more than 70% above the listing price.
The New York Times had a great story about Twitter learning from the mistakes of Facebook and the differences in the offerings, which weren’t trivial:
The initial public offering of Mark Zuckerberg’s social network in 2012 was blowout, capitalistic excess. Twitter has carefully managed expectations. But both are a curious mix of cynicism and belief – redistributed among bankers, backers, executives and prospective investors. Still, when it comes to hyped-up I.P.O.’s, everyone seems most comfortable reacting to recent history.
Facebook’s float was an exercise in insiders extracting as much as possible, while surrendering little. Lead underwriter Morgan Stanley priced the stock at an overly generous multiple, and then raised the price and shares sold as mania sucked in the credulous.
Insiders dumped stock – most of the money raised went to them – because uncertainty surrounded the company’s business model. Growth was falling, and mobile posed a threat. Mr. Zuckerberg seemed to care more about his wedding the following day. Super-voting stock meant he could ignore stockholders. The stock’s open on Nasdaq was flubbed, and it quickly lost half its value.
Twitter’s float has been more finely tuned to rewarding new buyers – delaying future wealth removal by insiders. Backers are not selling any stock, so all the money raised furthers Twitter’s ambitions. There’s only one class of stock. Growth is accelerating, and mobile devices’ growth is wind at Twitter’s back.
So Twitter shareholders were the ones profiting today, not insiders, which is an interesting gamble, but likely bought them a lot of good will with investors. The Bloomberg story had a good section talking about money managers urging people to sell today, indicating the market may be overvaluing the company:
The pricing puts the onus on Twitter to deliver on its promises of fast growth after earlier pitching shares as low as $17. Chief Executive Officer Dick Costolo has rallied investor interest in Twitter’s rapid sales curve — with revenue more than doubling annually — even with no clear path to making a profit.
The company received orders for about 30 times as many shares as it offered at the $26 IPO price, a person with knowledge of the matter said. About 8 million of the shares, or 11 percent of the total in the IPO, were allocated to retail investors, the person said, asking not to be identified because the information is private. A typical retail allocation is 10 percent to 15 percent.
Still, any price over $40 reflects “hype” and makes Twitter too risky of an investment, said Jeffrey Sica, president and chief investment officer of Sica Wealth Management LLC in Morristown, New Jersey.
“I anticipated a very strong open, but when you start to approach these levels this is absolute froth,” he said. “There is nothing supporting this range. I think this is just way, way above what realistically we should be considering a stable open.”
Brian Wieser, an analyst at Pivotal Research Group in New York, downgraded Twitter to a sell rating with a $30 price target.
“If you’ve got it, sell it,” Wieser said in an interview. “If there are willing buyers who have a view of the business today that gets them comfortable with this valuation then those people should hold it, but I can’t get there, and I’m not recommending my clients to hold it.”
While IPOs might be returning to 2007 levels of valuation, hype and investor interest, it does make sense to keep in mind that it won’t last. Twitter seems to be benefiting from watching Facebook as well as incredible market timing. Either way, a more than 70 percent return on an investment is pretty incredible for one day.
Some of Thursday’s top stories:
New York Times
Internet kills the video store, by Brian Stelter
Small-shop hiring fueled by 3-D printers to iPhone tools, by Jeff Green
Traders bemoan slump squeezing Deutsche Bank to HSBS: Currencies, by David Goodman and Lucy Meakin
Ireland says successfully completes final bailout review, by Padraic Halpin and Sam Cage
Steelmaker ArcelorMittal says it’s turning corner as earnings rise, by Philip Blenkinsop
Whole Foods discounted after grocer misses on sales, cuts forecast, by Samantha Sharf
CBS is kicking cable’s butt, by Dorothy Pomerantz
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2008: Matters named Money ME
by Liz Hester
Wal-Mart has another item to add to its list for getting ready for the holiday shopping season: fixing its website. Customers were able to snag incredible deals Wednesday after a problem with the site offered items that typically cost hundreds of dollars for tens.
Here’s the story from the Wall Street Journal:
Christmas came early for some lucky customers on Walmart.com Wednesday morning.
A pricing malfunction on Wal-Mart Stores Inc.’s website set off a shopping frenzy, as customers snagged expensive items like computer monitors and televisions for less than $10.
Wal-Mart said its site wasn’t hacked, but the company is still working on fixing the problem. As it works to fix it, the company said the site may not work properly for some customers.
The error led to very low prices being displayed for items such as treadmills that normally cost $600 being offered at $33, televisions priced at $2,000 on sale for a couple hundred dollars, and videogames such as “Grand Theft Auto V” that typically sell for $60, going for $18 on Walmart.com.
ABC News reported some details of the items “on sale”:
The country’s largest retailer was selling a 24-inch high definition Viewsonic computer monitor, an InFocus IN2124 Projector digital projectors and other products, many for $8.85. The projector is listed for $578.89 on Walmart.com and $579.99 on Newegg.com.
As customers shared about the deals on social media sites like Instagram, wondering if the site was hacked, products sold out online in just hours.
When asked if the company will honor items sold to customers at the mistakenly low prices, Jariwala said the company is “still working through those details.”
Just two weeks ago, Walmart stores in Louisiana experienced another frenzied shopping day, but that time with live customers. An error in the food stamps EBT system caused account limits to temporarily disappear, leading customers to load up shopping carts with hundreds of dollars worth of items.
Bloomberg reported that some customers decided to take advantage of the “discounts” by picking up items in the store:
The retailer also may have lost sales while its website was down in the middle of the day.
Some items including kayaks, monitors, televisions and gym equipment were heavily discounted while other items were priced up, said Christian Antonio, a Pittsburgh-area blogger who earlier today wrote about the pricing abnormalities. A can of Lysol had sold for more than $100 and Kool-Aid packets were selling for more than $70, Antonio said in an e-mail.
The price issues affected many departments, Antonio said. Children’s cribs were offered for $28 and highchairs for $7, he said. Exercise equipment such as elliptical machines and treadmills that normally sell for hundreds of dollars were offered for $33 and $21, he said.
Shoppers took to Twitter to crow about their deals.
“I ordered 50 kayaks and 100 speakers,” @AlbertMarsh posted. “You better honor it!”
Some, anticipating their purchases might not be fulfilled, opted for “Site to Store,” which lets them pick up online orders at a store. They posted pictures of their early-morning receipts alongside their discounted merchandise.
Walmart.com failed at 10:30 a.m., said Justin Noll, director of Client Experience for AlertBot, an Allentown, Pennsylvania-based company that tracks website crashes. At that time the site had an error message that said it was undergoing scheduled maintenance, which sites typically perform around 2 a.m. when traffic is low, Noll said.
“This looks like someone made a mistake,” he said. “Someone enters the prices and probably entered in the wrong price. It’s likely human error.”
Well, if it was human error, that person definitely made a lot of Wal-Mart customers happy. The LA Times story even offered advice from one Twitter user on taking advantage of the discrepancies:
Twitter user @freeshootXiggy offered advice for those looking to cash in: “People buying monitors off Walmart site in bulk are morons. Those are pricing errors, go for the smaller things maybe you’ll get lucky.”
Wal-Mart told the Associated Press that it was working to resolve the issue Wednesday morning and that the site may have intermittent problems with availability until then.
“We apologize for any convenience to our customers,” said Ravi Jariwala, a spokesman for Wal-Mart’s online operations.
Jariwala would not say whether Wal-Mart would honor bargains that customers scooped up and said it was still working through the details.
Heading into the crucial holiday shopping season, Wal-Mart has doubled the number of items it has on its website from last year to 5 million.
Let’s hope it can get the pricing for those 5 million items right, especially before customers start buying in earnest for the holidays. I also hope there will be a few follow-up stories about whether Wal-Mart will honor the discounts or if it will cancel the orders.
by Liz Hester
After hedge fund SAC Capital pled guilty to criminal and civil charges of profiting from inside information, the real stories examining the deal came out on Tuesday. Some of them were interesting.
Bloomberg Businessweek ran a story asking the question if the deal was actually good for the government:
During a press conference yesterday announcing a record settlement for insider trading with hedge fund SAC Capital, a reporter in the room asked the question that was on everyone’s mind: Is the fact that the fund’s founder Steven Cohen hasn’t been charged with anything a major disappointment?
Preet Bharara, the U.S. Attorney for the Southern District of New York and the man behind the podium, looked a touch peeved: “What has happened today is a very substantial and important thing—it is a rare thing for an entity to be held to account, and also rare to have it plead guilty, and also rare and unprecedented to pay the penalty,” he said. “We are not shy and retiring people, we are not unaggressive …”
Few people would argue that the government has been unaggressive in its pursuit of Cohen, whom the U.S. Securities and Exchange Commission, FBI, and U.S. Attorney’s Office have been investigating for years. But even after Cohen agreed to pay an additional $1.2 billion fine (on top of $600 million already owed to the SEC) to settle criminal charges that his firm engaged in insider trading, with SAC pleading guilty to all charges, Cohen faces no time behind bars. Instead the public may be left considering that a very wealthy individual is paying a large sum of money to the government and then going on with his life.
Unlike earlier times, think Michael Milken or more recently Raj Rajaratnam, Cohen isn’t going to jail and he isn’t going on trial. Businessweek makes a good point. The New York Times argued that corporations have been treated like individuals for a while, indicating that justice was served:
While Professor Burton is correct that only human beings can commit crimes, the notion that corporations are the same as individuals in the eyes of the law dates at least to an early 19th century Supreme Court case, which held that corporations, like people, can enter into contracts. That view was reaffirmed in the recent Citizens United case, which held that corporations are entitled to the free speech guarantees of the First Amendment.
The federal government has long prosecuted corporations whose managers engaged collectively in criminal behavior. “Corporations should not be treated leniently because of their artificial nature nor should they be subject to harsher treatment,” the Justice Department principles state. “Vigorous enforcement of the criminal laws against corporate wrongdoers, where appropriate, results in great benefits for law enforcement and the public.”
These benefits, according to Professor Friedman, include protecting the public, deterring similar unlawful conduct and what he called “expressive value,” which is the public statement that certain behavior should be subject to criminal sanction.
“There are many critics who will say, ‘You can’t incarcerate a corporation, so what’s the point?’ My view is, what they did, it was just as wrong, and by treating it as a criminal rather than civil matter, it makes an important statement about the seriousness of the wrongness.”
There’s surely no dispute that SAC Capital was the site of some of the most brazen and widespread insider trading in Wall Street history. In its plea agreement, the firm admitted committing five felonies. Six of the firms’ traders have pleaded guilty to securities fraud charges, and two more are awaiting trial in what the prosecutors have called a systemic insider trading scheme that spanned more than 10 years.
The Wall Street Journal chose to focus on the judge’s approval of the deal. If the deal is rejected, then SAC has the option to pull back its guilty plea:
When Judge Laura Taylor Swain examines the agreement as soon as Friday — the date of the next hearing – her only option will be to give the deal a thumb’s up or a thumb’s down. If she rejects the deal, SAC Capital can withdraw its guilty plea.
Yes, you heard that right. If Judge Swain decides the penalties aren’t stiff enough, SAC Capital can pretend the last two days never happened, re-assert its not-guilty status, and push on to trial.
But before we continue this discussion, let’s back up a second. The agreement reached on Monday was technically two separate deals – a criminal plea deal to be heard by Judge Swain on Friday, and a civil settlement to be heard by Judge Richard J. Sullivan at a hearing on Wednesday. As part of each deal, SAC has agreed to cough up $900 million. In the criminal case, that amount is cast as a fine and in the civil case it’s cast as an amount to be forfeited.
(One further note: SAC will get a credit against the $900 million civil forfeiture for $616 million that it’s already agreed to pay to settle related civil suits with the Securities & Exchange Commission.)
There’s more: In order for the criminal deal to make it to Judge Swain’s desk on Friday, Judge Sullivan has to first approve the civil settlement. That contingency is laid out in the plea agreement. While legal experts following the case say that Judge Sullivan’s approval is highly likely, Judge Sullivan himself threw some doubt into things on Tuesday when he said he would not necessarily rubber-stamp the civil deal.
But the story points out SAC isn’t off the hook if the deal is rejected. It just means that it can go back and renegotiate or head to trial. The saga continues as we wait to see what the judges will decide.
Some of Wednesday’s top stories:
New York Times
MF Global customers will recover all they lost, by Ben Protess
New student loan rules add protections for borrowers, by Ann Carrns
IRS cracks down on breaks tied to land of rich Americans, by Richard Rubin
New York nerds sift Citi bike data to solve availability, by Priya Anand
Starbucks wants to recruit 10,000 vets, spouses to its ranks, by Lisa Baertlein
Tesla shares sink as quarter underwhelms, by James O’Toole
Triangle Business Journal
Two UNC students to open clothing store on Franklin Street, by Dawn Kurry
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by Chris Roush
With the Twitter initial public offering expected to price and begin trading later this week, business journalists have been voracious in their coverage of the story.
Carl Quintanilla is one of the principal anchors of CNBC’s “Squawk on the Street,” which broadcasts live from the New York Stock Exchange.
Since joining the network in 1999, Quintanilla has covered a wide range of stories for both CNBC and NBC News, where he was a New York- and Chicago-based correspondent. He has covered the Beijing and London Olympics, the reconstruction of post-war Iraq and the 2004 U.S. presidential campaign. In 2005, he spent weeks in New Orleans as part of NBC’s team coverage of Hurricane Katrina, for which he shared a national Emmy, an RTNDA Edward R. Murrow Award and broadcast’s highest honor, the Peabody Award.
Prior to joining NBC, Quintanilla spent six years as a reporter for The Wall Street Journal. Quintanilla earned a bachelor’s degree in political science from the University of Colorado.
Quintanilla spoke by email with Talking Biz News about how he has been covering the Twitter IPO. What follows is an edited transcript.
How do you learn to cover an initial public offering?
Well, I don’t cover banking. CNBC has an army of talented reporters far better equipped to cover the IPO — Kayla Tausche, David Faber and Bob Pisani, just to name a few. But as an anchor (and former WSJ reporter), I know enough to be dangerous. It requires an eye for detail — knowing how to find tiny disclosures in amended S-1s, for instance. And there’s the reaching out to sources — market makers, bankers, attorneys, exchange officials — who have a hand in a complex process.
Since the company isn’t talking, how hard is it to report such a story?
The company IS talking — just in the form of SEC filings. The prospectus has always been a bit like a kimono being lifted. That’s certainly the case with Twitter, which was particularly coy leading up to this stage.
What did you learn from previous IPO stories that you’re now applying to the Twitter IPO story?
Obviously, everyone wants to draw lessons from Facebook. There are so many similarities: two companies, based in Silicon Valley, selling social media, becoming household names. I think much of the focus will be on the NYSE, though, and people will be reminded of how human interaction still serves an important function in capital markets. The image of the designated market maker on the NYSE floor this week will be a contrast to the computer issues we all remember on the morning Facebook began trading.
Would you agree that there doesn’t seem to be as much interest in this IPO as Facebook’s?
I think it’s commensurate with Twitter’s user penetration. Twitter has about one-fifth of Facebook’s user base. I’d argue the level of interest is at least one-fifth of Facebook’s IPO.
What is it like reading through the SEC documents that Twitter files to look for stories?
The stories jump off the page. Not just the metrics like revenue per user, but also the way in which those metrics are presented. They tell you a lot about a company. (Did you read the Groupon prospectus? They turned accounting into a black art, and it came back to bite them.)
What other sourcing do you use for this story?
I’ll never tell.
Why do you think IPOs of companies like Twitter and Facebook are such big business stories?
It’s a “coming out” — like a college player being drafted into the NFL or NBA. How’s the rookie received? What’s his first year like? It’s the beginning of a narrative: about whether this company has the “stuff” to play with the big boys — to weather the scrutiny of quarterly earnings, activist investors, Reg FD, and so on. There’s also something inherently interesting about watching capital being generated before your very eyes. That’s why IPOs are perfectly suited to live TV, which we obviously like a lot.
There was an IPO last week for The Container Store that saw a huge first-day pop but it didn’t seem to get as much coverage. Why do you think that’s the case?
Really? We thought it was a big story. There was a huge crowd on the NYSE floor. We interviewed the CEO after the stock opened up almost 100 percent. Maybe it’s because they’re still kind of an “unknown” to many people: only 63 stores in 22 states. That will change, though. Its plan is to expand to 300.
Do you see these stories as an indication that maybe the IPO market is turning around? If not, then what does it signify?
The IPO market has been red hot this year. End of story. The average IPO is up 16 percent on their first day of trading. That’s the biggest pop in at least a decade. If anything, I think people expect the IPO market to cool off, as we get closer to some form of tightening by the Federal Reserve (whenever that comes). The folks who came public this year were very smart, or very well advised.
What has CNBC been trying to focus on with its Twitter IPO coverage?
We always try to bring it home for the retail investor. Is this a stock you should buy if you have the chance? What kind of portfolio does it fit into? What does it say about the state of the overall market? As for myself, I reported the CNBC documentary, “#TwitterRevolution” earlier this year — and I just try to add as much context as I can about the company, itself. Twitter is the beneficiary of a lot of serendipity. One of my favorite sayings about the company is: “It’s the story of a handful of guys who drove their clown car into a gold mine.”
How hard is it to distinguish your coverage on a story like this that everyone seems to be covering?
Not hard at all, actually. No one in television knows the company like CNBC does. No one has covered it — from inside and out — like CNBC has. This is one of those weeks where the power of the network just speaks for itself.
by Liz Hester
Blackberry announced Monday that it was abandoning plans to sell itself and it would replace CEO Thorsten Heins. The company decided instead to sell $1 billion in convertible debt to current shareholders and remain a public company.
Here’s the story from the Wall Street Journal:
After its months-long sale effort failed, BlackBerry Ltd. Monday abandoned a tentative $4.7 billion plan to go private and instead signaled its intention to continue as a public company with new leadership and a $1 billion investment from a group led by its major shareholder.
While the for-sale sign is down at least temporarily, there remain a host of questions about the future of the Canadian smartphone maker.
Sales of a new line of BlackBerry phones have flopped and the company is burning through its once-comfortable cash pile. Despite its efforts to trim costs by slashing jobs and writing down its inventory of unsold phones, some analysts said the company will need to make even more cuts to stay afloat during a transition period.
Investors also expressed skepticism about the company’s plans, sending the stock down 17% to $6.45 in recent trading in New York.
BlackBerry said it would sell $1 billion of convertible debt to Fairfax Financial Holdings Ltd. and other institutional investors.
The New York Times covered the leadership change, noting that Blackberry’s interim CEO is credited from saving another tech company from bankruptcy:
John S. Chen, the former chief executive of Sybase, will become BlackBerry’s executive chairman and acting chief executive.
Along with the cash infusion into BlackBerry, V. Prem Watsa, the chairman and chief executive of Fairfax, will return to the phone maker’s board. Mr. Watsa had resigned after the company announced that it was reviewing strategic options, including a sale, in the summer.
Mr. Heins, a former Siemens executive in Germany, became chief executive in January 2012 after James L. Balsillie and Mike Lazaridis, the longtime co-chairmen and co-chief executives, resigned in the face of a rapid decline in BlackBerry’s business and the failure of its PlayBook tablet computer.
Formerly the head of the company’s handset business, Mr. Heins heavily promoted the new line of BlackBerry 10 handsets as the company’s salvation. They proved, however, to be a commercial failure.
Mr. Chen led Sybase from 1998 until the company was acquired by SAP of Germany in 2010. He is widely credited with saving Sybase from bankruptcy. When he arrived, Sybase had lost much of its corporate database business to Oracle, IBM and Microsoft. Unprofitable, it had also developed a reputation for producing unreliable software.
After resolving the problems in Sybase’s traditional business, Mr. Chen expanded it into producing software for creating applications, mainly for businesses, for use on wireless mobile devices and to manage wireless networks.
The USA Today story pointed out that Chen’s appointment was a clear signal that Blackberry was still trying to move away from being primarily a device company:
“Putting a non-device person as an interim CEO is a clear sign that the devices business is not what matters anymore,” says Gartner analyst Carolina Milanesi. “The software and services (business) is where they have the assets and where they need to take the company.”
The announcement is the latest twist for the ailing smartphone maker as competitors such as Apple, Google and Samsung continue to dominate. After sales of its smartphones running its new BlackBerry 10 software failed to attract consumers, the company announced it was pursuing ‘strategic alternatives” for its business, including a possible sale.
BlackBerry has a tough battle ahead as it attempts to regain footing in the smartphone market. The company reported a second quarter loss of $965 million, while Microsoft’s Windows Phone operating system has surpassed BlackBerry for third in market share, behind Apple iOS and Google Android.
Reuters offered these details about the convertible share sale:
“Fairfax’s investment will buy the company some time, which it badly needs, but the company needs a new strategy more than ever,” said Jan Dawson, Ovum’s chief telecoms analyst, noting that communication on the strategy must start “very soon”.
Fairfax has agreed to buy $250 million of the seven-year subordinated debentures, which will be convertible into common shares at $10 each. The private placement could eventually increase the number of BlackBerry shares by as much as 20 percent.
BlackBerry did not name the other institutional investors participating in the deal, but Chen said Silver Lake is not one of them.
“I know we have enough ingredients to build a long-term sustainable business,” he told Reuters. “I have done this before and seen the same movie before.”
BlackBerry had been talking with a number of companies, including Cisco Systems Inc, Google, SAP, Lenovo Group Ltd, Samsung Electronics Co Ltd, LG Electronics Inc and Intel Corp about selling parts or all of itself, Reuters reported previously.
But the only public offer came from Fairfax, which announced a tentative $9-a-share bid in late September. Reuters said on Friday that Fairfax was struggling to fund the $4.7 billion bid.
Moody’s said in September that that transaction would hurt Fairfax’s credit profile because it would convert a public equity investment into a private structure.
The current deal is structured to give Fairfax and the other investors flexibility as the financing is in the form of convertible debentures.
The investors have an option to buy up to an additional $250 million worth of debentures within 30 days following closing.
Investors obviously didn’t like the announcement since it does little to solve Blackberry’s problems or outline a clear strategy to do so. The cash infusion will likely be enough to get Chen in place, but whether it buys him enough time to actually make changes and capitalize on Blackberry’s extensive patents and other non-device businesses is anyone’s guess. Pulling back from a sale typically doesn’t help investors’ and analysts’ confidence in the board or the decisions.
Some of Tuesday’s top stories:
New York Times
After a decade, SAC Capital blinks, by Ben Protess and Peter Lattman
J.&J. to pay $2.2 billion in Risperdal settlement, by Katie Thomas
EU lowers Euro-area growth outlook as debt lingers, by Ian Wishart
Twitter said likely to price IPO above increased offer range, by Lee Spears, Sarah Frier and Leslie Picker
Has Zara reached saturation point? Far from it, investors bet, by Sarah Morris
HTC to slash costs in drive to eke out fourth-quarter profit, by Michael Gold
Will gadget-happy fliers finally start paying for Wi-Fi? by Justin Bachman
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Some of Monday’s top stories:
New York Times
Under health care act, millions eligible for free policies, by Reed Abelson and Katie Thomas
Seeking more pay for delayed play, by Bill Carter
Wall Street Journal
Google’s Eric Schmidt lambasts NSA over spying, by Deborah Kan
Detroit recovery begins where Philadelphia and Leipzig converge, by Chris Christoff and Jeff Green
SAC settlement, with record fine, set for Monday, by Kate Kelly
It’s going to be an interesting week for BlackBerry, by Ewan Spence
Today in business journalism
This date in business journalism history
by Liz Hester
This is the week. The highly anticipated initial public offering for Twitter is likely to sell this week and the media was keen to advance the story. There were a couple of pieces about Twitter’s ability to sell more ads abroad.
Here’s the Wall Street Journal’s story:
Three-fourths of Twitter Inc. users are overseas. But only one-fourth of its revenue comes from non-U.S. advertisers.
To Twitter, that is a “substantial opportunity” as it readies to go public as soon as this week. But it will also be a big challenge to convert a global following into sales and profits.
Twitter’s international operations were a major topic of questions during a pre-IPO “roadshow” meeting with investors last Wednesday at the Mandarin Oriental hotel in New York, according to an investment manager who attended.
Analysts say the messaging service must mind cultural differences while promoting itself abroad. In Japan, for example, users tend to keep their accounts private and circle of followers small, while Brazilian users are public and liberally follow one another. It also must compete with popular local rivals, such as Sina Corp.’s Weibo in China, Japan’s Line and South Korea’s Kakao Inc.
Until recently, Twitter’s overseas growth was more spontaneous than by design. It attracted large numbers of users around events such as the Arab Spring and 2011 Japan earthquake. But many users drifted away when the news cooled, and Twitter was more focused on building out its U.S. business.
Now, Twitter is working on bringing users and advertisers outside the U.S. on board. In Korea, where it is introduced ads last Friday, it is trying to forge relationships with TV networks and advertising agencies.
The New York Times version of the story started with more of the hard numbers at the top:
The problem is, Twitter is still figuring out how to make money from those users abroad. The company received 26 percent of its total revenue from markets outside the United States in the third quarter, compared with around 17 percent at the end of last year, according to regulatory filings.
Turning that global popularity into international ad sales remains tricky for the company, which is based in San Francisco, as it nears an initial public offering of stock. Many overseas brands are more skeptical of the impact of social media advertising than their American counterparts, while Twitter faces stiff competition from local social media rivals like Line of Japan, which already has hundreds of millions of registered users across Asia.
Twitter also has yet to expand its foothold in many international markets. That includes the global debut of its self-service advertising system, begun in the United States in late 2011, which allows brands to buy ads without talking directly to a sales representative. The company plans to bring that system to a number of global markets, according to regulatory filings.
“Twitter is not quite there yet,” said Oliver Eriksson, head of strategy at the digital ad agency VML in London, whose clients include Microsoft and Gatorade. He said the company still had to prove to potential clients that its advertising platform could reach international consumers. “They need to do it quickly to give brands confidence that Twitter can add value,” Mr. Eriksson said.
That skepticism is reflected in Twitter’s ad sales outside the United States.
While Twitter’s highly publicized initial public offering is estimated to value the company at roughly $12 billion, it still remains a relatively small player in the world of digital advertising. Twitter is expected to grab just 0.5 percent, or $580 million, of the total spending on worldwide digital advertising this year, according to the research firm eMarketer. That compares to $6.4 billion that will probably be spent on its archrival Facebook in 2013.
For international brands, Twitter’s relatively small scale could prove a deterrent. Many companies, like Nestlé and Unilever, are looking to increase their advertising spending within social media as more consumers spend increasingly more time online. But analysts say that Twitter’s relatively small footprint makes it a harder sell.
Reuters reported that investors are watching to see if Twitter’s IPO takes the same course as Facebook’s:
The market will be on alert to see if Twitter follows the fate of last year’s botched Facebook Inc IPO: the social networking company’s stock hit the market in May 2012 and was plagued by allocation problems, trading glitches and a selloff. The shares did not recover the IPO price until a year later.
Views have been mixed on what investing strategy to take for Twitter’s IPO. According to a Reuters survey of 29 broker-dealers and independent advisers, 23 said they are not recommending Twitter shares. Only one said he would recommend it – and only to certain clients. Five others said they would wait to snap up the stock if it plunges after it begins to trade.
But while retail interest might be low, tech industry analysts say there is expected to be a good appetite for Twitter’s stock from institutional investors at the current valuation.
On Friday, Morningstar joined three other brokerages in setting price targets for Twitter Inc well above its IPO price range, suggesting the stock has room to rise at least 30 percent.
That’s a good sign for early investors, if you can get the stock, which USA Today reports isn’t likely:
Relatively few investors actually get allocated stock at the IPO price, while the rest are left to buy at whatever the market commands, and history has shown that highly hyped stocks (like Twitter) often command enormous prices relative to actual earnings.
Data compiled by Forbes shows that of all the IPOs priced since Sept. 12, 19 have returned over 20%, averaging a 69% gain over just a few weeks. On average, these stocks opened for trading on the day of their IPO at a price 49% higher than the IPO price and only experienced 9% further upside on average the rest of that trading session.
IPOs make great stories, especially since they offer the first look at previously undisclosed information. They don’t however typically make many regular people rich. But if Twitter can capitalize on it’s opportunities in markets outside the U.S., then it could make buy-and-hold investors some money in the long-term.