Tags: Twitter | Facebook | lockup | stock

Twitter Insiders Plan to Hold Stock Even as Lockup Expires

Monday, 05 May 2014 10:17 AM

Some of Twitter Inc.’s biggest investors are hanging on to their stock, even as restrictions on selling the shares are set to lift today.

About 480 million shares from Twitter insiders will become eligible for sale tomorrow for the first time since the San Francisco-based company’s initial public offering in November. That’s more than four times the current amount available for trading, which could push the stock price down if those shareholders sell.

Yet some of Twitter’s biggest stock owners who in total have at least 205 million shares, including venture capital firm Benchmark and co-founder Evan Williams, have declared they’re not letting go of their equity. That’s a vote of confidence in Twitter, which is grappling with a 39 percent plunge in its stock this year as investors question the company’s slowing user growth.

“We’re going to hold,” said Chris Sacca, an early Twitter investor, who manages about 15 percent of the company’s shares through various arrangements. Analysts and other investors are focusing too much on user growth and instead should “just recognize how much money Twitter is going to continue to put up on the board.”

Co-founder Jack Dorsey and Chief Executive Officer Dick Costolo will also keep their stakes, the company said in an April 14 regulatory filing. Rizvi Traverse Management LLC, whose 14 percent ownership makes it the single-biggest investor, won’t sell either, people with knowledge of the situation have said. Some of Sacca’s holdings are included in Rizvi.

Reducing Pressure

“This should, arguably, help alleviate some of the potential pressure on the stock in the coming weeks,” Arvind Bhatia, an analyst at Sterne Agee & Leach Inc., wrote in a note to investors. He has the equivalent of a hold rating on the stock.

Jim Prosser, a spokesman for Twitter, declined to comment, as did Justin Dini, a representative for Rizvi Traverse.

All of this takes a page from Facebook Inc., whose CEO and founder Mark Zuckerberg declared four months after the company’s May 2012 IPO that he wouldn’t be selling any stock except to cover taxes. That helped briefly arrest a plummeting share price for the Menlo Park, California-based social network, which investors were selling amid doubts of whether it could transition to smartphones and tablets and make money from mobile advertising.

Internet Rout?

Twitter’s share lockup is ending as it faces pressure from investors who are moving out of richly valued technology companies. Internet stocks including Yelp Inc. and LinkedIn Corp. have taken a hit. The Nasdaq Internet Index is down 16 percent from a March peak.

“People have held these shares for a while, some of them for years, so some of them might be a little bit anxious to see some cash,” said Max Wolff, an analyst at Citizen.VC. “The irony here is that the pressure to sell is reduced by the relative price weakness.”

Through May 2, Twitter is still up 50 percent from its $26 IPO price. The shares reached an intraday peak of $74.73 on Dec. 26 and dropped 0.4 percent to $38.88 at 9:48 a.m. in New York. During an earlier lockup expiration in February of 9.87 million shares, Twitter’s stock rose.

Yet questions about Twitter’s prospects have mounted. The company said last week that its monthly active users in the first quarter reached 255 million, with year-over-year growth decelerating to 25 percent from 30 percent in the previous period. The results pushed the stock down to its lowest level since the IPO.

Don’t Compare

Sacca said Twitter shouldn’t be judged by its monthly active user numbers. Twitter is being unfairly compared to Facebook, he said, where monthly active users are more important because the activity is social. At Twitter, which is more focused on the spread of information, investors should be paying attention to how people’s tweets are magnified in the media and on television, he said.

With many insiders planning to hold onto the stock, Twitter isn’t pursuing a secondary offering, Chief Financial Officer Mike Gupta said last week.

“One of the primary reasons companies typically pursue a secondary offering is to provide organized liquidity to early investors who are looking to sell stock,” Gupta said during the company’s first-quarter earnings call. “Many of our largest insiders and early investors have indicated that they have a long-term belief in the company and are taking a long-term view of the stock.”

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Some of Twitter Inc.'s biggest investors are hanging on to their stock, even as restrictions on selling the shares are set to lift today.
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Monday, 05 May 2014 10:17 AM
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