The Willis Report: What you should know about Twitter's IPO - Los Angeles News | FOX 11 LA KTTV

The Willis Report: What you should know about Twitter's IPO

Posted: Updated:

By Gerri Willis
FOX Business Network

A lot of people are asking me about the Twitter IPO.  Should I buy shares in the social media company when they are issued later this month, they ask.  And, the answer is simple: Not if you were planning on buying the first day it's issued.

You're not likely to get in at a good price.  The typical trajectory for a high-profile company like Twitter coming to market for the first time is that the stock runs up almost immediately. The pros are engaging in what they experts call "price discovery." Why should you care? Because the stock can trade lower after the initial euphoria wears off - and that means you may lock in your shares at a high.

The IPO isn't for you.  Floating public shares is a way for insiders to cash out and for the best clients of the Wall Street banks backing the deal to lock in profits. Flipping the stock, holding it just long enough to reap the rewards of the initial run-up is common. It's the "greater fool" theory: Bankers and insiders are relying on individual investors to help prop up the prices.

Being well-known, which Twitter is, isn't the same as making money, which Twitter isn't. Or rather it's not making profits.  In its filing with the Securities and Exchange Commission, the company revealed the good news that it's revenue more than doubled to $254 million in the first six months of the year, but also the bad news, that its net loss grew by 40 percent to $69 billion. User growth is slowing and so are the prices it charges for advertising, its main source of revenue.

Not buying on the first day doesn't mean you never buy the stock. Smart IPO investors wait to see how the company is valued and buy after the hot money is out. In other words, they do their homework and make sure they understand the business.

In sum, I'm not saying that Twitter is a bad company. In fact, I am a huge fan and use it nearly every day of the week. The point I am making is that it can be difficult for individual investors to profit from IPOs.

Plenty of small investors got burned in the Facebook IPO in May 2012 when the social media company's launch onto the stock market was marred by technical glitches that prevented or delayed orders from going through. It's not likely that a Twitter IPO will have the same problems, but the Facebook debacle should be a warning for all small investors when it comes to red hot IPOs.

Interact with Gerri on Twitter @GerriWillisFBN and Facebook for more information, or to voice your concerns and questions.

  • BusinessMore>>

  • Apple says some celebrity accounts compromised

    Apple says some celebrity accounts compromised

    Tuesday, September 2 2014 3:02 PM EDT2014-09-02 19:02:53 GMT
    Apple says that some celebrity accounts were deliberately targeted and hacked, leading to the posting of nude photos online.
    Apple says that some celebrity accounts were deliberately targeted and hacked, leading to the posting of nude photos online.
  • Irish tax haul jumps, signals kinder 2015 budget

    Irish tax haul jumps, signals kinder 2015 budget

    Tuesday, September 2 2014 2:51 PM EDT2014-09-02 18:51:40 GMT
    Ireland's Finance Department says tax collections from a growing economy are unexpectedly strong and have put the country on course to achieve normal deficit levels after six years of austerity.
    Ireland's tax collections are beating targets and have put the country on course to achieve normal deficit levels after six years of austerity, the government announced Tuesday.
  • Politico founder to be Washington Post publisher

    Politico founder to be Washington Post publisher

    Tuesday, September 2 2014 2:42 PM EDT2014-09-02 18:42:04 GMT
    Katharine Weymouth is stepping down as publisher of The Washington Post and will be replaced by Frederick Ryan, who previously led Politico.
    The Washington Post is ending 80 years of being led by the Graham family with the departure of Publisher Katharine Weymouth.
Powered by WorldNow

KTTV FOX 11
1999 S. Bundy Dr.
Los Angeles CA 90025

Main: (310) 584-2000
News Tips? (310) 584-2025

Didn't find what you were looking for?
All content © Copyright 2000 - 2014 Fox Television Stations, Inc. and Worldnow. All Rights Reserved.
Privacy Policy | New Terms of Service What's new | Ad Choices