Twitter has not yet gone public, and its issue price is still undetermined. However, an impatient Wall Street analyst has already given Twitter a target share price of $50, which would value the company at $23.6 billion. But according to analysis by the well-known American investment website Fool, this evaluation is overly optimistic.
This assessment was made by Rob Peck, an analyst from SunTrust Bank in the United States. The media reported that it has only been a week since Twitter released its prospectus, and the issue price has not yet been determined. At this point, setting a target share price seems premature.
Currently, Twitter has not announced the number of new shares to be issued in the IPO, but it estimates that the number of outstanding shares after the sale will be 470 million. Based on a target share price of $50, the market capitalization would reach $23.6 billion, while Twitter's own valuation stands at $9.7 billion.
Compared with peers in the social networking industry, a market capitalization of $23.6 billion is equivalent to one-fifth of Facebook's, and is only $3 billion less than LinkedIn, whose post-IPO performance has been consistently good.
If compared with LinkedIn, it becomes clear that the aforementioned analyst's evaluation is overly optimistic. Currently, LinkedIn's revenue for the past twelve months is $1.24 billion, with profits of $40 million, and its market capitalization is $26.6 billion. Meanwhile, Twitter's operating loss over the past year has reached as high as $450 million.
The aforementioned analyst believes that Twitter's revenue will exceed $600 million this year, and double next year. He thinks that Twitter has various opportunities for long-term growth, such as differentiated user experience, user base, and real-time interaction business.
Fool website analyzed that Twitter may not be as wonderful as the analysts imagine, and there is also the possibility of becoming a bad investment target. One of Twitter's biggest weaknesses is its small user base, with 220 million users, which is only one-fifth of Facebook's. The "Wall Street Journal" once reported that many advertisers choose to advertise on Facebook after comparisons, because Facebook has a much larger user base.
In addition, Twitter's best-performing revenue market is the United States, where advertising revenue per thousand timeline views is seven times higher than overseas. However, it seems that the growth of U.S. Twitter users has hit a ceiling. In the last quarter, Twitter's U.S. users grew only 2% quarter-over-quarter. In contrast, despite its already large size, Facebook's user growth rate in the United States and Canada remains at 1.5%.
The investment website Fool pointed out that when Facebook went public, the biggest concern was how to generate revenue from mobile devices, whereas the biggest worry for Twitter's IPO has become how to grow its U.S. user base. If the user base is too small, Twitter will be unable to compete with giants like Facebook and Google for ad share.