5 #ETFs To Follow @Twitter And Its Friends


A tidal wave of investor  optimism blasted Twitter shares up nearly double upon its stock market debut Thursday.

Is @Twitter #Overvalued?

The initial public offering valued the microblogging site at nearly $25 billion in market capitalization, with shares closing in the stock market at 44.90. S&P Capital IQ's pre-IPO analysis valued the company at $11.3 billion to $13.7 billion. S&P used relative price-to-sales and price-to-sales-to-growth analysis because Twitter has never turned a profit and isn't expected to until 2015.

"Our valuation assessment reflects the considerable risks we see related to some confusion about Twitter's offerings and their appeal, a number of larger and comparably positioned competitors, indications of decelerating growth in users and engagement, significant operating and net losses we see through 2014, and our view of somewhat lacking corporate governance ," S&P Capital IQ wrote in a client note.

S&P projects the company will enjoy a compound annual growth rate for revenue of 97% from 2013 to 2015, fueled by advertising and overseas potential.

The IPO price is "beyond comprehension," given its current revenue and three straight years of profit losses, says Ronald Lang, a principal at Atlas Builds Wealth in Philadelphia, with $20 million in assets under management. He's recommends clients stay away for now.

"Despite the fact that these stocks are bought on future expectations, they need to prove themselves over the next six to 12 months that they can truly monetize their service, especially on a mobile platform," Lang said in an email.

Twitter's fundamentals look akin to the IPOs during the Internet bubble, according to Rapid Ratings, a financial research firm in New York City. The firm's assessment of Twitter based on 62 financial metrics showed Twitter had 92% similarity with dot-com era bubble companies. By contrast,LinkedIn ( LNKD ) shows similarity of only 46% andFacebook ( FB ) 33%.

Nonetheless, no other company comes close in providing a platform in which people can interact with celebrities and global leaders alike, says Ian Greenleigh, a social media strategist based in Austin,Texas, and author of "The Social Media Side Door: How to Bypass the Gatekeepers to Gain Greater Access and Influence."

"People are tired of seeing updates from people they already know, which was the original appeal of Facebook," he said in an email. "They want to engage with people they want to know -- visible elites who are otherwise inaccessible to ordinary people."

"Elites employ armies of gatekeepers to keep us out, and to make sure the information the world gets about them reflects the images they're trying to cultivate," he added. "But Twitter shatters those barriers and there's nothing else like it."

ETFs To Follow

Getting exposure to Twitter through an ETF will dramatically reduce the risk of betting on a very speculative company. These five ETFs will most likely snatch up shares of the social-media juggernaut when they reconstitute or rebalance next.

1. Global X Social Media Index ETF ( SOCL ), +44% year to date, would be the most obvious fit. It holds 28 social media companies from the U.S., China, Japan, Russia, Taiwan and Germany.

2. First Trust U.S. IPO Index Fund ( FPX ), +34% this year, holds 100 of the most liquid newly listed companies and holds them during their first 1,000 trading days. It rebalances and is reconstituted quarterly.

3.Renaissance IPO ETF ( IPO ), -2% this year, buys IPOs after their fifth trading day and holds them for two years.

4.First Trust Dow Jones Internet Index (FDN), +38% this year, holds 42 stocks that get at least 50% of their sales online. But they must have at least three months of trading history and so the soonest it could include Twitter is March. The ETF rebalances on the third Friday of March, June, September and December.

5.First Trust ISE Cloud Computing Index (SKYY), +24% this year, holds 39 companies that provide computer services on remote servers as well as those that use cloud-computing technology. These include Facebook,Zynga (ZNGA) andActivision Blizzard (ATVI). That would qualify Twitter too.

Follow Trang Ho on Twitter @IBD_THO .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , ETFs

Referenced Stocks: FB , FPX , IPO , LNKD , SOCL

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