There has been speculation that popular social media website Twitter is set to go public soon via an IPO. This IPO should be similar to Facebook (NASDAQ: FB), which saw high anticipation. Twitter will be hoping that its IPO is more successful than Facebook's, which failed to live up to the hype. If you are interested in getting a piece of Twitter, but don't want to wait until it goes public, there is a wise investment option. GSV Capital (NASDAQ: GSVC) offers the opportunity to invest in several private companies, and Twitter is among them.
Unique investing concept
The company offers a huge portfolio of publicly traded and private technology companies backed by venture capital. Through this structure, GSV is the link between public investors and private companies.
After several large holdings in tech companies like Facebook, Groupon, and Zynga, GSV Capital now counts on the valuation of Twitter for most of its net asset value. In the second quarter, GSV Capital valued Twitter at $9.5 billion. Recent valuations have placed Twitter at $10 billion. The Wall Street Journal recently used Google comparisons to estimate Twitter is worth north of $12.5 billion. This means GSV Capital is possibly downplaying the real value of its Twitter stake.
Here are the most recent top 10 holdings of GSV Capital, with fair value and percentage of total net asset value:
Percentage of GSV Assets
Avenues World Holdings
In total, the top 10 positions represent $156 million in assets and 62.8% of the valuation of GSV Capital. GSV has investments in a total of 45 companies. In the second quarter, GSV made new investments in Coursera, AliphCom, Jawbone, and oDesk Corporation. GSV also increased positions in ZocDoc, SugarCRM, Solexel, Dailybreak, and AlwaysOn.
Rebounding with Facebook
GSV still owns shares of Facebook, and that ownership could be one reason shares of GSV Capital are undervalued. The company has tried to distance itself from Facebook, due to a rough IPO, but may want to make sure investors know it still owns a small stake. In the second quarter, GSV estimated its 350,000-share stake in Facebook to be worth $8.7 million. That comes after a cost of $10.5 million for GSV Capital. However, using a recent closing price of $38.50, GSV's stake is currently worth $13.5 million.
Facebook has ambitious plans to offer video advertisements on its site, which could cost as much as $2 million per ad. This new source of revenue should provide a boost to Facebook and can keep the share price above the $35 level. GSV's stake in Facebook represents only 3.5% of net assets, but is growing in valuation with Facebook's rise.
Analysts are becoming more bullish on Facebook's growth. Revenue is expected to climb 43.6% in fiscal 2013 and another 30% in fiscal 2014. The success and climb in Facebook's price also bodes well for the future Twitter IPO. Shares of Facebook fell and continued downward after investors failed to see the high growth the company once had. With Facebook shares now ahead of IPO prices, Twitter should come to the market with high demand and a good profit return for GSV's stake.
The good news for GSV Capital is Facebook shares are now in the black on the company's balance sheet. GSV paid around $29 a share after being late to the party in Facebook's valuation climb prior to its IPO. GSV had a similar problem investing in companies like Zynga and Groupon at their peaks. While Zynga and Groupon have lost their luster in their declining markets, Twitter and Facebook appear to have staying power with a growing user base and strong advertising revenue.
Recent IPO success
Control4 (NASDAQ: CTRL) recently went public. The company, which offers smart house tools to customers, has seen its share rise. With 782,821 shares in ownership, GSV's stake is significant and worth much more than the $7.5 million value reported in the second quarter. As the company's IPO is digested and investors continue to see the significant growth ahead for Control4, GSV should see a huge increase in this valuation.
Control4 has done something remarkable in its take on the smart-home market. The company has made it affordable for normal customers to automate items like lights and thermostats without expensive remodels. The company should see strong growth ahead as it capitalizes on trends like going green and using technology through smartphones. While there are competitors in the field, ABI Research estimates that 12 million homes will have a smart system by 2016. This represents a huge opportunity, considering only 1.8 million houses had smart technologies in 2011. Control4 has a strong distribution channel of more than 1,600 dealers, and its technology has been used in homes in more than 80 countries.
Shares of GSV Capital have been up so far this year, thanks in part to the rise of Facebook. The increase in Facebook's value has helped GSV's small stake and also the possible public valuation of Twitter, the largest holding of the company. However, shares of GSV Capital still seem significantly undervalued with the possibility of rising valuations of several top-10 holdings that are likely to go public in the next two years.
Shares of GSV Capital are approaching 52-week highs thanks to Facebook's rise. With the possibility of several IPOs, the company should see a nice boost toward the end of 2013. The sale of stakes in several publicly traded companies could also yield nice returns for investors. Shares also trade under their current net asset value of $12.87.
GSV Capital provides investors with an easy way to invest in privately owned technology companies. The prospects are risky, as some investments fail, but the risks are worth it in the end. GSV Capital has several large, well-known companies that will provide a nice reward for patient investors. As Twitter and others approach IPOs, investors should get familiar with GSV Capital.
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The article Make Money From Twitter Before Its IPO originally appeared on Fool.com.
Chris Katje has no position in any stocks mentioned. The Motley Fool recommends Facebook. The Motley Fool owns shares of Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!