Is Twitter (TWTR) overvalued? It's not even been one full day of trading and there are already analysts coming out of the woodwork talking about how expensive it is. At a current price of nearly $48 per share (up 83%) and a market cap of $26 billion, the micro-blogging site's value does seem bubble-esque. It really shouldn't come as a surprise though. It's been the most anticipated IPO of the year, in a much better IPO environment than when FB went public. Not to mention, the sky's the limit when talking about TWTR's revenue potential. After all, it's still in its early stages of revenue generation. The company does pull in 70% of its revenue from mobile ads, an important metric given the growth of mobile advertising. Moreover, Twitter could get into the lucrative business of selling data. Stay tuned.
I'm an investments analyst for a US-based independent investment research firm. My focus is on economics, options, and all types of stocks, but especially tech, Internet, and renewable energy companies. I have experience as a options market...
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It does seem a little like 2000 with some of these high flyers in tech and social media. One thing I will say, back in 2000, nobody really had any idea how many of the companies were going to generate profits. It was all hype and very little was quantifiable. These days, at least there are models and projections which show the path to profitability for a given business. Now, some of these may be entirely too optimistic (Twitter likely falls into that category) - but at least there's some logic behind the lofty valuations
There is a few of them floating around at the moment in the tech space. The same can be said about all parts of the market. Take junior resources for example... If you take a retrospective view of what happened over the past 5 years in that space you could frame a similar argument. A few will make it and justify the valuations many wont.
Also the businesses of today are playing on really strong trends. Mobile consumption, customisation, social engagement.... These are real trends that you can observe and quantify. Humans are clever, we have become adept at pealing money out of each others pockets. I am sure the clever cats at twitter will figure it out.