Fidelity marks down the value of its Twitter stake by 56% | Hacker News Reader

Fidelity marks down the value of its Twitter stake by 56%

nasdaq.com

90 pointselsewhen56 comments

This isn’t exactly my wheelhouse, can someone explain what this means in simple terms?

In my mind it kind of seems like the value as a public company was (at time of purchase, at least) $44 billion, but Fidelity’s internal analysts have decided that if it were to be sold today it would go for about half that?

Theres not much of a story here. The entire sector is down from the FED induced covid highs. For example, Amazon and Facebook are down 50% in the public markets. But since Twitter is now private and has no public stock price, its up to shareholders like Fidelity to guess the current value. This is their guess.

This isn't down from COVID highs, it's down from the purchase price 2 months ago (2022/10/27, long after COVID highs vanished)

2 months ago, no one in their right mind would buy Twitter at a $44B price. No management would sign off on it. But then it was 20 million out of a 36B fund. Do the math, if it was important in their books. Likely, was just randomly purchased as part of the index, or bought as an insignificant investment.

> Fidelity’s internal analysts have decided that if it were to be sold today it would go for about half that

Not quite. It depends on which exact accounting method they're using, but the most vanilla version would usually look like this: as long as they belive that Twitter will survive as a company, they will apply 'going concern' valuation [0]. So they try to estimate the value that the company will generate for its owners. Such value could materialize eg in the forms of dividends or share buybacks. Technically, they will try to estimate the company's potential to make such distributions.

If they believed that Twitter was eg insolvent, they would apply 'gone concern' valuation, so they would try to estimate for how much each of the company's assets would sell, assuming that the company itself would vanish. Other accounting methods would include eg 'mark-to-market' (for publicly traded assets) or eg 'mark-to-model' (more common for financial instruments without a market price).

[0] https://www.investopedia.com/terms/g/goingconcern.asp

> In my mind it kind of seems like the value as a public company was (at time of purchase, at least) $44 billion,

There was an offer at the price, which the board jumped at and the buyer had immediate remorse and tried to avoid until legally compelled; that rather suggests tbe sale price was a upper rather than lower bound on the actual FMV.

As an investment firm you specify what you current investments are valued at, up or down from time to time. When the company is public its just the stock price but as private it's more of the precived value, that can also differ from one firm to another holding the same paper. So in short they say their investment now is half the value compared to when they put money in. In 6 months they can reevaluate and say the value is xx amout more again.

So this is strictly the value of their investment and not reflective of their assessment of the business as a whole? How exactly does that work?

Is it like if I bought a stake in a bag of apples but only my apple went bad?

It's reflective of their assessment of the business as a whole. That number is basically "what we think Twitter as a whole is worth * the percent we own". They think Twitter as a whole is worth half as much, so they're marking down the value of their shares.

Thank you, that actually makes sense.

It doesn't mean anything. Fidelity is required to tell people that have money in the fund what they think the asset is worth, but they own such a small stake that they aren't going to have particularly different information than anyone else.

This comment has negative value because it’s casually dismissive but the author feigns knowledge of the subject matter but in fact misleads the reader.

Fidelity employs competent investment analysts. They have determined that twitter is worth less than half it was at the time Musk purchased it. This means Fidelities stake is worth less by the same percentage. None of this has anything to do with the size of Fidelities stake.

If the analysts are tasked with getting blood from a turnip it doesn't matter how competent they are.

Note that I'm not arguing that Twitter is worth more (or less) than they say it is, I'm arguing that they likely don't have access to information that makes their valuation particularly useful.

> Note that I'm not arguing that Twitter is worth more (or less) than they say it is, I'm arguing that they likely don't have access to information that makes their valuation particularly useful.

Wait, you don’t have any opinion about Twitter’s value, you’re just here impartially to say that you’re aware of Fidelity’s inner workings and are confident that they are likely wrong about Twitter’s value?

Do you care to share your personal insights into any blunders by Fidelity that don’t involve Twitter?

I am not confident that they are wrong about Twitter's value, I'm confident that their valuation has huge error bars.

What’s the size of the error bar on your confidence?

Can you share how you gained this confidence?

Sorry to interrupt your pitchfork campaign, but is there some set of information that we know this could be based off of, i.e. some sort of legally mandated report for shareholders of private companies? This is not my area of expertise nor am I in the US/familiar with US rules, but this thread has me curious.

Shareholders are usually legally entitled to quarterly or year end financials at a minimum, even for private companies. Though I don't know if any such reports are available yet to investors.

Braingenious is not doing a pitchfork campaign but is actually right: https://www.bnnbloomberg.ca/twitter-buyout-loans-get-bid-at-...

Ha yeah, one of the largest financial firms doesn't have access to any useful information regarding their investments. This is quite possibly the most ridiculously ignorant comment I have read on HN.

It’s kind of refreshing to see somebody blatantly carrying water for elmo without outright accusing anyone critical of his business acumen as spreading “FUD”

Misread, I'm making shit up about the visibility Fidelity has, not making a case for Twitter being worth more than they say.

$44 billion was more than it was worth (ever) and the value has absolutely plummeted since ol' Musky took control.

Do you have other examples about Fidelity being bad at valuing companies or… just this one?

What is your process for figuring out how bad Fidelity is at valuing other private companies, given your personal insight?

edit: Dyslexia fix

"making shit up"

I don't have a process, I just don't think they are spending a huge amount of time on a 0.02% holding. Like hey, maybe they do have special insight and are not just acknowledging a disaster by hugely marking down their estimate.

I don’t mean to pile on but what would make you conclude that about Fidelity’s analyst operation? It’s a 50k employee company. They have entire departments that do mark to market analysis and accounting. Plus it’s a newsworthy holding and they have access to peers at other firms that might hold more, and access to Twitter.

I used to be part of a two man analyst department and even we’d have made time for this. :)

So, you don’t like to make shit up about Fidelity’s process outside of this specific Twitter valuation (which you have no option of)? lol

Morgan Stanley has tried to sell some of their twitter shares for sixty cents on the dollar a few weeks ago.

Wasn't that debt (loans) rather than shares?

After the Musk transaction completed, at $44 Billion, they had a $19.66 Billion stake. That comes out to 44%. Ignoring the fact that even if they had only $100 million, they would've had just as much access to financial data as Elon himself, I guarantee at a 44% stake they had very intimate details of the financial health of Twitter before the transaction and still do after the transaction

My bad, the fund listing at the article says $8 million, which is what I used when I wrote the comment.

$19.66 million, not billion.

The public information is plenty to justify marking down the value. The only question is how far.

The meaning is in the fact that Fidelity has people well placed to use public info to make good guesses about the market value. We can safely assume they're better at it than most of us.

It's significant because it's a legit institutional entity and it will validate actions of other partners.

Even if it's entirely an issue of 'market conditions' the albatross will be hung on Musk for the time being irrespective of how much we can truly allocate to his 'antics' vs. actual market problems.

He really timed the market very badly on that.

Still seems pretty optimistic to me. Twitter's institutional engineering knowledge and relationships with its customers, i.e. advertisers, have all been set on fire. It's unlikely Twitter will fully die, but I can't see how, next time anyone gets to sell it, it will have even a quarter of its original value. And Musk isn't likely to cut his losses, seeing how his actions up to this point have been driven by hubris. He's going to ride it all the way to the bottom. I expect it to go for pennies on the dollar.

Users seem to be spending more time in twitter than ever before...

Sure, everyone 'hates' it, but by one key metric it seems to be doing rather well.

Active users aren't revenue. In fact they're a cost unless Twitter can get enough advertisers.

I actually began paying for twitter just to be a metric; if twitter throws advertisers out and becomes a paid-only social network I think it will pave the way for a less toxic internet with fewer perverse incentives. I wish you could give them more than $11 without having to resort to buying dummy ad-space.

It was worth 50% less before Elon bought it based on the valuations adjustment in most tech companies. (-22B) Then Elon cut/lost 75% of their workers… which is a significant value to any valuation(-5-10B) based off the ability to make new products or sell parts of the company. Then they lost a significant income stream by many companies buying ads leaving. And haven’t found an equal source of income. My guess is they are closer to 6-12B.

Also their debt is really significant…

Stupid question- so some people still own part of it? What percentage does Musk actually own?

Does a drop like this trigger a margin call?

A bunch of people chipped in when musk took Twitter private. No margin calls in private held companies. (But the banks might want repayment if the collateral is not the same value anymore)

https://www.washingtonpost.com/technology/2022/12/24/elon-mu...

Banks cannot recall LBO debt because they think the debtor’s value decreases. That would be ludicrous.

Like most corporate debt, the debtor must service the debt repayment schedules while following financial covenants (addition rules on performance ratios). If debtor fails to make payment or breaches covenants, it can lead to a technical default.

In this case, most of Twitter’s LBO debt haven’t been syndicated (ie. The banks still hold them and haven’t securitized them to be sold to other investors.) Twitter no longer has a credit rating (Moody dropped them in Nov, S&P dropped them in Dec; both citing insufficient information to assess credit risk). Without a credit rating, most bond investors simply won’t buy the debt because it wouldn’t meet their investment guidelines.

Also, there can absolutely be margin calls on equity holders of private equity if their stakes were financed on margin. ie. If a hedge fund (most are leveraged at least 100% for financial reasons) chipped in, their margin creditor (ie their prime broker) can absolutely request the fund to post more collateral.

You say it would be ludicrous for banks to be able to recall debt based on their assessment of the value, but it isn't far off from normal lending practices for commercial real estate where the bank can just decide that your property has fallen below an arbitrary threshold and require you to pay back a portion of the loan immediately.

Mortgages are not typically corporate debt. Mortgages are by definition collateralized. Therefore, there are covenants triggers related to the value of the collateral.

The vast majority of corporate debt (bonds) is unsecured. There is no collateral.

https://corpgov.law.harvard.edu/2020/01/27/the-decline-in-se...

Some of the loans are backed by Tesla stock and have triggers to require Musk to turn over the collateral if its (TSLA) value drops below a certain number. I recall seeing that number being $100/share

While the margin loans were originally part of the commitment letter in April 2022, Musk later decided against them and sold more Tesla stock instead to fund the deal with cash. None of the Twitter debt is backed by Tesla stock.

https://www.bloomberg.com/opinion/articles/2022-05-26/elon-c...

Bottomed out at $109 a share but the dead cat has bounced

Weren't there also people who owned TWTR stock and were able to retain those shares in the bought-out Twitter (thus declining the $54.20/share buyout price)?

I think it was subject to the buying syndicate's approval. For example, my reading was that the Saudi investors put up additional cash before the sale knowing that they would be getting a payout of a similar value when the buyout went through.

Right I figured it would have to get authorized by the buyer group.

(But on that note … why?? If Musk thought he was overpaying, to the point he even tried to back out, wouldn’t you want as many suckers as possible to remain shareholders? Each share is $54.20 you don’t have to come up with.)

Too small and it's not worth the paperwork. Plus, you run into regulatory problems once you exceed 500 investors or so.

A grand value slashed of $10 million of a fund in November that had assets of $36 Billion.

I don't get how it is significant. Almost all tech stocks are down by roughly that much ~50%. Silly.

Most tech stocks are not down 56% in the last month. Most large funds, when presented with a high buyout offer in the midst of a down market, would not roll over their investment in a LBO saddling the company with yearly interest payments nearing 25% of its revenue. etc

First of all, the amount in question is 20 million dollars down to 10 million? That is really insignificant, and this feels meaningless in the context of discussing Twitter's performance. It's not a large sum to write down.

They also agreed to the Twitter deal in March/April. If a fund manager bought Twitter 1 month ago, or looks like the write down was from the price it was 2 months ago, then they needed to get their head checked, no one would touch Twitter at $44 Billion in October.

That's meaningless. They don't have inside information.

It'd only be meaningless if there was a recent last-traded price, which reflects the most up to date information. But there isn't, so this is actually meaningful.

Reply on news.ycombinator.com