This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

How Twitter Broke GSV Capital In 2013

NEW YORK (TheStreet) - GSV Capital (GSVC) has a problem.

The publicly traded venture capital investment fund has seen its shares tumble, even as pre-IPO investments like Facebook (FB) and Twitter (TWTR) have surged since listing on public stock markets. This year may prove a make-or-break for GSV Capital, where the firm's shares either re-connect with underlying VC investments, or investors simply give up.

Twitter is too Arcane

10 Ways to Crack Wall Street In 2014

When one runs the numbers, a pending lockup expiry on Twitter shares could present an opportunity for GSV Capital, which counts shares in the micro-blogging site as roughly 35% of its overall assets. That's especially the case as other GSV Capital investments such as Dropbox, Palantir Technologies, TrueCar, Gilt Groupe and Spotify are speculated as moving towards initial public offerings.

TWTR ChartTWTR data by YCharts

GSV Capital's performance since listing on public stock markets defies logic.

The late-stage, pre-IPO VC fund invests in companies it believes are likely to IPO, and listed itself on Nasdaq in May 2011. The firm received a lot of press as a means to gain exposure to high-profile IPO's like Facebook and Twitter before these companies went public. However, if Facebook and Twitter are any indication, GSV Capital has done a poor job tracking pre-and-post IPO performance.

Twitter is the best example.

In May 2013, GSV Capital disclosed a 1,900,600 share stake in Twitter worth about $35 million. That stake valued Twitter at just under $10 billion. Between then and now, Twitter's valuation has nearly tripled to about $30 billion as the company listed in the NYSE; however, GSV Capital's shares have only risen by about 30%. As Twitter moved towards an initial public offering last fall, GSV Capital's performance was even more perplexing.

Twitter's IPO Bonanza Becomes GSV's Bloodbath?

Any investor who bought GSV shares at the end of the third quarter in anticipation of a blockbuster Twitter IPO would have made the right overall call. They also would have lost over 30% of their money by using GSV Capital as a Twitter proxy.

GSV Capital ended the third quarter with a net asset value (NAV) of $13.16 a share, and its Twitter stake was worth $44.8 million, or about $23.50 a share, an about 30% rise from May. The company's stock closed the quarter at $14.82, a reasonable 12% premium to the net asset value.

Twitter priced its Nov. 7 IPO at $26 a share, and the company's first day of trading proved to be a frenzy, reminiscent of the 1990s dot-com bubble. Twitter closed its first day of trading at $44.94, an over 72% IPO-pop. Inexplicably, GSV Capital's shares tumbled to $13.44, losing most of their premium to third quarter NAV, on Nov. 7.

Currently, GSV trades at a steep discount to its NAV per share. GSV ended the year with a NAV of $14.91 a share, with the fair value of its investments worth a total of $355.4 million. The company's Twitter stake ended the year at a value of nearly $103 million, or 35% of its net assets. 

Twitter shares have fallen in the first quarter, and other publicly traded investments like Chegg (CHGG) and Violin Memory (VMEM) have also posted lackluster results. However, GSV's NAV discount may have grown during the first quarter, according to Barrington Research estimates. Barrington believes GSV trades at a over 30% discount to its NAV, but should trade at a premium. Research analyst Jeff Houston holds out a 'speculative outperform' rating and $17 a share price target for GSV.

Get Out of Twitter

Twitter's lockup expires on May 7, 2014, meaning GSV could sell pre-IPO shares at that time and realize an investment gain. One way of looking at GSV's discount to NAV is that investors believe Twitter could tumble further between now and May, harming investment returns.

Those fears could extend to GSV's other private and public investments. If the tech sector is currently in a bubble, GSV's NAV discount could reflect expectations of a looming bust. It could also reflect an expectation that VC investment returns may be poised to fall in the future.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,919.59 +80.85 0.48%
S&P 500 1,981.60 +9.86 0.50%
NASDAQ 4,527.5140 +19.2020 0.43%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs