With the bullish results from Facebook Inc (NASDAQ:FB), will it push GSV Capital Corp (NASDAQ:GSVC) back towards book value? The stock trades considerably below book value due partially to the poor results of that stock in the public markets.
The company is a publicly traded investment fund that specializes in venture-capital backed pre-IPO firms.
Anybody following GSV Capital Corp (NASDAQ:GSVC) knows that the company went public back in 2011 to take advantage of the slowdown in emerging growth stocks such as Facebook Inc (NASDAQ:FB) going public. The company was supposed to benefit from the huge gains in the public markets from social media stocks, but it eventually blew up after Facebook Inc (NASDAQ:FB) didn’t fare well in the public markets.
About more than Facebook
Though the stock slumped back in May 2012 when the Facebook IPO bombed, the GSV Capital Corp (NASDAQ:GSVC) barely counts it as a top 10 holding. In fact, the Twitter, Inc. investment is worth nearly four times that of Facebook Inc (NASDAQ:FB) with a 14.4% position size in the fund. Other fast-growing tech firms such as Palantir Technologies, Dropbox, and Violin Memory have position sizes around double that of the social media giant.
Top 10 Positions
Regardless of whether the company is vastly more than the Facebook Inc (NASDAQ:FB) position valued at only $9 million of a $245 million fund, the stock appears to move based on it. With Facebook reporting Q2 2013 earnings that easily beat estimates and caused the stock to surge, it should bode well for GSV Capital Corp (NASDAQ:GSVC). The stock plunged from $21 to below $7 following the failure of the Facebook IPO and the eventual collapse of smaller investments in Groupon Inc (NASDAQ:GRPN) and Zynga Inc (NASDAQ:ZNGA), which the company exited during Q1 with a combined $3.3 million loss after taking previous write-downs.
Book value discount
With the book value declining in previous quarters, it probably isn’t a big shock that the stock struggles to maintain that level. Clearly the discount provides an incredible opportunity if the company can start growing the valuation. At the end of March, the stock had a book value of $12.69 with net assets of $245 million and nearly 10% of those assets in cash. Unfortunately that book value has been declining with a value of $13.07 back at the end of December.
With the lack of a hot IPO, GSV Capital Corp (NASDAQ:GSVC) has yet to live up to its initial hype of providing investors with diversified positions in private firms that soar in value during the IPO process. Several opportunities exist to prove that potential with IPOs of Twitter and Palantir Technologies in late 2013 or early 2014.
Exit values
Another issue with the Facebook Inc (NASDAQ:FB), Groupon Inc (NASDAQ:GRPN), and Zynga Inc (NASDAQ:ZNGA) positions is that the company remained in those positions long after the IPOs. The intention all along has been the investment in private firms. Any investor is already capable of purchasing shares in those stocks without having to pay the substantial management fees. With the recent rally in Facebook, clearly the market hopes management hasn’t unloaded shares yet. Unfortunately the Groupon Inc (NASDAQ:GRPN) shares were unloaded during Q1 when that stock traded in the $5 range while now sitting at nearly $9. Not to mention, both stocks have multi-billion dollar valuations that somewhat defeat the purpose of a fund that is suppose to be focused more on small firms.
Twitter potential
The goal has to be for a Facebook exit to be near in order to rotate that money into more promising private firms such as Twitter that normal investors don’t have access to for investment. Twitter could ultimately be the make or break investment for the stock. With the success of Twitter and potential to match Facebook, the significant investment in that firm at a valuation of around $8 billion could be the home run GSV Capital Corp (NASDAQ:GSVC) needs for the major gains originally envisioned by investors.
With Facebook soaring to a value of $80 billion, a much higher Twitter valuation is very plausible now. Such a move would not only increase the book value of GSV, but it would likely allow the stock to trade closer to a book value that might be significantly higher.
Bottom line
GSV Capital still provides investors the opportunities to invest in private firms with huge potential such as Twitter or Palantir Technologies. The failures of Zynga Inc (NASDAQ:ZNGA) and Groupon are quickly moving into the distant past while the uplifting news from Facebook could finally push the stock back to book value. If the company can finally hit a home run with one of the potential IPOs, this stock will reward investors with big gains.
Mark Holder and Stone Fox Capital Advisors, LLC own shares of GSV Capital. The Motley Fool recommends Facebook. The Motley Fool owns shares of Facebook. Mark is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Will the Facebook News Finally Get GSV Capital Back to Book Value? originally appeared on Fool.com is written by Mark Holder.
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