Leslie Picker New York
Twitter’s user growth is slowing and it shows no sign of turning a profit. Some fund managers say that is not going to stop the microblogging service’s $12.8 billion (R128bn) valuation from treading higher. Much higher.
The $12.8bn figure is derived from the fair value that Twitter put on its shares in an initial public offering (IPO) filing last week. Ironfire Capital and Gamco Investors project the San Francisco-based firm could be worth $15bn to $20bn once it begins trading.
Those targets are fuelled by the firms’ expectations that Twitter can increase revenue at a rapid clip, as it expands globally and draws advertising dollars from companies seeking access to its more than 200 million monthly active users. Twitter had more than doubled revenue annually as companies advertised on the service, the filing showed.
“The valuation is fair despite the lack of quantifiable profit,” said Jeffrey Sica, the president of Sica Wealth Management. “I anticipate the revenue to grow exponentially as retailers and media begin to explore ways to attract new customers through the use of Twitter.”
Sica said Twitter might fetch a valuation of as high as $40bn when it started trading and he would consider buying the stock.
Twitter has not set a price range or an expected listing date and declined to comment, said spokesman Jim Prosser.
In the offering prospectus, it pegged the fair value of its common stock at $20.62 a share as at August. There are 620 million shares outstanding, according to people with knowledge of the matter, who asked not to be named because the number was not included in the filing.
At $12.8bn, Twitter would be valued at 28.6 times its revenue of about $448 million over the past 12 months. Facebook trades at about 20 times sales while LinkedIn fetches about 21 times sales.
David Joy, the chief market strategist at Ameriprise Financial, predicted Twitter might trade lower, although that depended on where the company and its investment bankers chose to price the sale – something that will not be determined until after investor meetings. While his instinct was that investors should not buy Twitter shares immediately, its long-run potential might still be strong. “The stock is not coming cheap but could be interesting if it has the playing field.” – Bloomberg