Twitter, which plans to raise $1bn from its initial public offering, could be worth $12bn to $40bn once it begins trading. With over 220 million active monthly users, the company generates around 85% of its revenue from ad sales most of which are accessed via handheld devices; which are set to rise as demand from developing countries continues to grow.
With social media being a top activity on the internet today our perception of Twitter is it will most likely have a bright future. We think they have a cool factor among youthful demographics that will continue to pull a large user base resulting in rising revenues from advertising sales.
It is not however without its problems. Let us not forget it has lost money for the last 4 years and there’s a large demographic of people out there who don’t get the microblogging aspect of Twitter. If they can do something to attract these people, reduce their burn rate and capture the potential from developing countries then they should be a solid holding for investors.
Like Facebook valuing this stock proves difficult as they are not awash with fixed assets and there is more than a modicum of unknown as to whether they can continue to grow revenues, become a profitable company and start to deliver income and capital returns to investors
At $12bn, Twitter would be valued at 26 times its $448m revenues. Facebook trades at close to 20 times sales while LinkedIn trades at about 21times sales.
We will watch with interest to see how the market actually values the company when it comes to market.
Company view: #neutral