It\u2019s official. The bird began trading on Wall Street last week with its IPO surging over 70% bringing the company\u2019s value to more than $25 billion. According to Wall Street\u2019s valuation, each Twitter user is worth around $110. At its peak, shares were trading at 45.8 times revenue over the past 12 months (compared to Facebook\u2019s IPO which debuted at 26 times revenue). Even at its IPO price of $26 a share, Twitter was branded the most expensive IPO in U.S. history relative to revenue.<\/p>\n
Now that retail investors can purchase the stock, should they? I believe there\u2019s great potential for investors to purchase the hype and get burned. A stock makes a good investment if its fundamental characteristics look promising. One of the most basic criteria to consider is a stock\u2019s price to earnings ratio. Twitter\u2019s stock appears overpriced by many conventional measures. Its price can only be justified if the company is a rare runaway success.<\/p>\n
It\u2019s also important to consider a company\u2019s business model. Twitter doesn\u2019t currently turn a profit and hasn\u2019t since it started in 2006. How will it make money in the future? Simply put, Twitter needs to turn targeted ads, especially mobile, into a big business. It has some major competition to deal with, including some companies already turning a profit like Facebook and Google.<\/p>\n
Does this sound familiar? Is should. Consider what happened to Facebook, Groupon and Zynga\u2019s stocks just six months after their IPOs debuted on Wall Street. They were all down 40%, 46%, and 42%, respectively. So, if history is any indicator (and, of course, past performance can\u2019t guarantee future results), Twitter\u2019s stock will likely come down to reflect its true worth. At these prices, the stock is just too much hype and not enough reality.<\/p>\n","protected":false},"excerpt":{"rendered":"
It\u2019s official. The bird began trading on Wall Street last week with its IPO surging over 70% bringing the company\u2019s value to more than $25 billion. According to Wall Street\u2019s valuation, each Twitter user is worth around $110. At its peak, shares were trading at 45.8 times revenue over the past 12 months (compared to […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"inline_featured_image":false,"footnotes":""},"categories":[20],"tags":[77,78],"class_list":["post-3479","post","type-post","status-publish","format-standard","hentry","category-investing","tag-ipo","tag-twitter"],"yoast_head":"\n