After months of hype surrounding the Twitter (TWTR) IPO, shares of TWTR stock soared during their first day of trading in November. Of course, Twitter stock was helped by a sector-wide tailwind, as social stocks such as Facebook (FB) and LinkedIn (LNKD) were already showing some impressive momentum in 2013.
Even though FB and LNKD have both pulled back from their October peaks, they are still blowing away the broader market. Shares of Facebook stock are up over 80% since Jan. 1, while shares of LinkedIn stock have doubled over the same time period.
While Twitter stock seems like an obvious member of “social stocks” family, though, analysts at Bernstein Research think otherwise. Their take on Twitter is simple: It is quite unique from other Internet media, and its “social” aspect is in fact not very important.
Twitter Stock – A League of Its Own
Bernstein Research explains that, while Twitter (and thus TWTR stock) is often compared to names like Facebook and LinkedIn, the experience of the platform is actually quite different.
Of course, being different from the core group of social stocks isn’t necessarily a bad thing. Even names like Groupon (GRPN) and Zynga (ZNGA), which dabble in e-commerce and online gaming but are often lumped into the “social stocks” category, have been on fire. GRPN stock and ZNGA stock have gained nearly 90% and 70% year-to-date, respectively.
And in the case of TWTR, Bernstein analysts actually think the fact that it is less “social” is more promising. Take a look at the report’s highlights:
- Twitter relationships are often a one-way street. “We suspect less than 25% of Twitter followership relations are mutual, while more than 75% of Facebook and LinkedIn are,” the report reads.
- This one-way street is largely because Twitter users are seeking content more than social interaction. “Based on our proprietary database of Twitter user behavior,” the analysts write, “we estimate that between 40% and 50% of users rarely (if ever) tweet or re-tweet, suggesting that Twitter is used primarily for content and link discovery by a large number of users, a use case that may lead to an increased click-through rate on ads.”
- Indeed, the TWTR stock analysts believe that the medium’s unique “use cases” directly drive its “effectiveness of advertising and the potential for monetization.”
- As a matter of fact, Bernstein added that it expects material acceleration of monetization and 2015 revenues, along with expanding margins.
Unfortunately, that wasn’t enough for Berstein analysts to call Twitter stock a buy.
But TWTR Stock Still Not a Buy
Instead, the report says that Twitter stock has “unclear upside” — as evidenced by its “Market Perform” rating and $40 price target. (Keep in mind, shares of TWTR stock are currently going for nearly $45, translating to around 10% downside.)
Bernstein Research says Twitter stock has “roughly symmetric upside and downside … with high degree of uncertainty.” And even though its most optimistic estimates for TWTR stock translate to 30% upside, the firm says it wouldn’t recommend buying shares because the uncertainty and risks for Twitter stock are so great.
Of course, plenty of other analysts have been luke-warm to Twitter stock after its IPO pop. Only two or the five Twitter stock underwriters ranking it a buy, with most unfavorable ratings coming as a result of the nose-bleed valuation of TWTR shares.
As of this writing, Robert Martin did not hold a position in any of the aforementioned securities.