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How to Buy Twitter Without Buying TWTR

This closed-end fund is a smart way to gain access


Twitter IPO Twitter S-1The Twitter IPO — arguably the most anticipated IPO since Facebook — just got a little more real Thursday evening after the company released its S-1, giving investors a look into the books.

And those who have become even more giddy about the offering have a chance to get a piece of Twitter before it ever goes public.

What We Learned From the Twitter S-1

So, what can we expect from the Twitter IPO?

Twitter’s S-1 finally gave us an idea about revenues and profitability. Namely, it has the former but not the latter.

In 2012, Twitter’s revenues came to $316.9 million, nearly triple what it brought in during the previous year. However, Twitter did post a $79.4 million loss, but there’s some silver lining there — that was 38% less than it lost in 2011.

Meanwhile, the most credible estimates I’ve seen have the company generating $600 million in sales in 2013 and $1 billion in 2014.

It’s too early to say what that implies for an IPO price. Early estimates value Twitter at around $15 billion, which would represent a price-to-sales ratio of 15 based on expected 2014 revenues. While that’s lofty, it’s not unthinkable — and for reference, Facebook (FB) currently trades for nearly 20 times sales.

Meanwhile, there are a few other points to consider.

First off, Twitter seems to have a more promising business model in place than Facebook did at the time of its IPO (and does today), in that it’s building partnerships with corporate sponsors rather than simply viewing them as disposable, churnable advertising clients.

As an example, earlier this year, ESPN and Ford (F) sponsored instant replay tweets during last season’s college football bowls. And Turner Sports, the NCAA, AT&T (T) and Coca-Cola (KO) followed suit during March Madness.

Twitter’s S-1 revealed a few things, but not an indication of how much these relationships are worth. Nonetheless, this shows that corporations are becoming engaged with Twitter on a far deeper level than they are with Facebook, where their role is still limited to building a fan page and inviting viewers to “like” it.

How to Profit off the Twitter IPO

So, how can investors without VIP access to IPOs get access to Twitter?

As I’ve mentioned before, the easiest way to harness Twitter is through GSV Capital (GSVC), a publicly traded venture capital firm with stakes in several up-and-coming technology companies.

This isn’t a pure play — in fact, Twitter makes up only about 15% of GSVC’s portfolio. Still, unless you’re a high-net-worth investor or happen to run a hedge fund, it’s the closest you can get before the offering. Besides, a successful Twitter IPO should cause many of GSVC’s other holdings to rise in sympathy.

Prior to the Facebook earnings announcement, GSVC’s shares had languished, and the stock traded at a large discount to its book value. You could effectively buy shares of Twitter cheaper via GSVC than buy buying them directly as a private placement. But as Facebook’s earnings surprise has reawakened the animal spirits in the sector, GSVC shares now trade at roughly a 10%-15% premium to book value.

That doesn’t necessarily make GSV Capital expensive. GSVC’s book value is a moving target, and its “real” book value would probably be a good 10% to 20% higher if its holdings were to be repriced today.

This is a long way of saying that, while it might no longer be the screaming bargain it was, GSVC is by no means expensive if you believe the Twitter IPO will be successful.

Charles Lewis Sizemore, CFA, is the chief investment officer of the investment firm Sizemore Capital Management. As of this writing, he was long GSVC. Click here to receive his FREE 8-part investing series that will not only show you which sectors will soar but also which stocks will deliver the highest returns. The series starts November 5 and includes a FREE copy of his 2014 Macro Trend Profit Report.


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