Twitter’s Stock Lockup Ends, But Investors Won’t Be Jumping Ship
The lockup on Twitter (NYSE:TWTR) stock expires Monday, and everyone is standing by to see if employees and other shareholders decide to hang on to their holdings or if they’ll opt to sell. The uncertainty on the side of shareholders sees its genesis in recent reports of slowing user growth, as Twitter has been overtaken by other social networking sites like Pinterest and LinkedIn (NYSE:LNKD). Naturally, analysts are holding Twitter up to comparisons of Facebook (NASDAQ:FB), which has continued to see growth thanks in part to the exploding popularity of Instagram, which it acquired in 2012.
However, Twitter might need to look at Facebook as an example to predict what might happen as a result of the stock unlock. When Facebook unlocked stock in fall 2012, share prices took a hit after many decided to sell off their holdings. Shares rebounded, and Facebook has since been able to continue its domination of the social media landscape.
Can Twitter expect a similar series of events? Many signs indicate that the company shouldn’t expect to see the bottom fall out, but a turbulent day on the markets is possible. Some of Twitter’s biggest investors have declared that they will not be selling when the lockup expires, inspiring confidence that stock prices will remain steady. Companies like Rizvi Traverse Management LLC, Twitter’s single biggest investor, which holds 14 percent of the social media site’s ownership, said it would be holding on to its shares as well, according to Bloomberg.
While there has been some concern about user growth, Twitter did double quarterly revenue, to $250 million, and reported ad sales of $226 million, up 125 percent from a year ago. There are plenty of reasons to be optimistic from an investor viewpoint, as some have speculated that the company’s best and biggest days are still ahead of it and that it’s a skewing of metrics that may be to blame for poor projections of Twitter’s future.
As Will Oremus writes at Slate: “Even if you’ve never signed up for Twitter, you’ve almost certainly been part of the audience for tweets, whether they’re displayed on television, quoted on the radio, or embedded in an article like this one. Whether you choose to or not, you’re likely to see more in the months and years to come. Yet you won’t show up in any of the metrics Wall Street is relying on to assess its growth.”
Another reason shareholders could benefit in the long run by holding on to their stock are new outreaches and partnerships with other tech giants. One such example was announced Monday by Twitter and Amazon (NASDAQ:AMZN) with the creation of #AmazonCart, which allows users to add items to their shopping cart without leaving the Twitter interface.
There is also a program in the wings called Twitter Amplify, a plan by executives to get a chunk of television advertising money by playing video highlights from live broadcast while displaying advertiser information before and after the clip. Company officials have already been in talks with companies like Viacom (NASDAQ:VIA) about implementing the new project.
Finally, it’s difficult to dismiss the notion that Twitter has fully ingrained itself into the mainstream. It’s hard to look anywhere without seeing a hashtag campaign of one kind or another, and the advent of live-tweeting events as they happen has become hugely popular, such as in the case of John Mayer during an earthquake in Japan this weekend. The company is also doing its best to give better data to advertisers, as seen with its recent acquisition of Gnip.
So does the expiration of the stock lockup mean investors will show a resounding lack of confidence in the company and quickly offload their holdings and send share prices into a free fall? There could be some shareholders looking to cash in, but that doesn’t mean Twitter is done for. In fact, as was the case with Facebook before, social media companies, although fickle, have found ways to monetize and generate monstrous revenues from their user bases. In the eyes of the market, Facebook became a viable investment when it demonstrated its capacity to monetize mobile use, a neat trick and one that Twitter has already pulled off.
With a strong foothold in the international psyche and tech culture, Twitter should be able to overcome recent downturns and make the most of its developing products. While it’s entirely possible that Twitter will have a bad day on the markets, its long-term viability appears to be promising.