Twitter: Just Another “Overhyped” Tech Company Set Up to Fail, Wadhwa Says
If you’re getting excited about Twitter’s highly anticipated IPO on Thursday, allow Vivek Wadhwa, a tech entrepreneur, academic, and writer, to tell you why it will amount to an epic #TwitterFail (in his view, of course).
“I think it’s another one of these Silicon Valley, overhyped companies," Wadhwa tells The Daily Ticker in the accompanying video. "It's going to have a ridiculously inflated valuation, and they’ll justify it for a short period of time and then it will collapse."
This IPO, says Wadhwa, is just a transfer of billions of dollars of wealth from Main Street to Wall Street and the "elite" in Silicon Valley.
“You’ll have an elite group of people getting richer," he argues. "You’ll have the investment bankers making out like bandits. You’ll have their cabal making out like bandits. And then you’ll have stockbrokers calling up ‘mom and pop’ on Main Street saying ‘Hey this is a great long term investment, buy it, trust us’ and the price is going to collapse probably by 90% within a year or two."
A high valuation was also an issue in Facebook’s (FB) IPO debacle; however, after fourteen months the stock returned to its IPO price. Facebook stock is up more than 136% in the last year (check out the video to see Wadhwa’s response to that).
Wadhwa sees Twitter's stock price collapsing because he doesn’t see Twitter as a sustainable business model. He cites a lack of opportunity in international markets like Asia where he says there is increased competition, as well as an inability to sell enough ads to keep revenue growing at the pace it needs to to justify the company's valuation.
Twitter is poised to price its IPO at a valuation that makes it more expensive than Facebook, according to Bloomberg even though Twitter has yet to post a profit.
Related: Losing Money Is “the Biggest Thing” Twitter Has Going For It, Blodget Says
Wadhwa compares Twitter to Groupon (GRPN), which went from a $26 stock to a $10 stock in the last five years.
And what’s this "cabal" Wadhwa refers to? He uses the term to describe the major players in Silicon Valley that he says bring in rich investors and inflate valuations through insider rounds of financing (which then keeps inflating the values of these companies before they go public). He calls it a “rigged system.”
Related: Facebook Doomed? Forrester Says Ads Tell a Sad Story
As for concerns that we are seeing signs of another tech bubble, Wadhwa says it is not pervasive. He describes it as a tech bubble limited to social media stocks, which he says will pop without a doubt.
Related: Forget a Meltdown, Beware a Market “Melt-Up”?
Be sure to tune in to Yahoo Finance's Breakout for an hour of full market analysis on the Twitter IPO starting at 9:45am ET Thursday.
Tell Us What You Think!
Send an email to: thedailyticker@yahoo.com.
You can also look us up on Twitter and Facebook.
More from The Daily Ticker
Can E-Cigarettes Cure America's $90 Billion Smoking Problem?
Losing Money Is "the Biggest Thing" Twitter Has Going For It, Blodget Says
