Twitter is Going Public: Should You Buy?

Nov 06, 2013


Investors are once again clamoring over the latest social media IPO. Twitter will go public on Thursday with shares estimated at $23-$25 each for its 70 million shares. Considering the precedent by Facebook and other social IPOs, you might think investors would be wary, but that doesn't seem to be the case. According to Reuters, "Sources close to the situation said demand among institutional investors was so strong that the final pricing is likely to go even higher than the new range announced on Monday."

But pundits haven't forgotten the lessons learned in the wake of Facebook's IPO. "Investors see social media and mobile as sweet spots and it is therefore no surprise that Twitter's IPO is creating so much excitement and is oversubscribed. Twitter's valuation just ahead of its IPO stands at $17.4 billion at the upper end, and this is high given that Twitter is still not profitable and has a much smaller user base than Facebook did at the time of its IPO," said Eden Zoller, principal analyst at Ovum, in a statement. "It is critical for Twitter to move quickly and effectively post IPO to address the challenges it faces in achieving growth and profitability. Twitter needs to step up and deliver on the expectations that are fuelling its valuation, and show that it has what it takes to provide a sustainable business model."

According to research from WordStream Twitter is still struggling in the ad department (so is Facebook), though all is not lost. WordStream's Larry Kim writes, "One exact comparison is revenue per visitor (RPV): $0.93 for Facebook compared to $0.44 for Twitter. Facebook's RPV is double that of Twitter's, but note that Twitter's RPV is up 300% year over year, while Facebook's RPV has only improved by 39% YoY." So while Twitter may still be playing catch-up on the advertising front, it's clear that it is making big strides, which will be important to the future price of those much-anticipated stocks.

But, Kim still says, "As for me, I'm not planning to buy any Twitter stock." Like Kim, many of the savviest investors will likely wait for the dip in price after the IPO buzz wears off, and snatch up stock that is sure to rise again.