Well, it looks like the timing couldn’t have been any more perfect for the Twitter (TWTR) IPO — if the hot movement of Twitter stock is any indication, at least.
The overall market has been in full bull mode, setting record after record. Social stocks including Facebook (FB), LinkedIn (LNKD) and Yelp (YELP) have been on fire. So is it any surprise that TWTR came out of a cannon this morning, trading up as much as 80% before Wall Street went to lunch?
As of this writing, Twitter stock was nearing $47. For context, the original price range set in late October was $17 to $20, the upgraded range closer to the offering was $23 to $25, and the Twitter IPO priced at $26 last night.
Really, the sweet early success of Twitter stock seemed inevitable.
As I’ve noted before in the IPOPlaybook, I think TWTR is a great company. Because of its focus on 140-character messages, the company has been mobile-first since its founding in 2006. TWTR also has benefited from its use as a “second screen” — that is, users often type away on Twitter while watching television. Because of this, the company has struck marketing deals with biggies like CBS (CBS), Comcast (CMCSA
), Disney (DIS) and the NFL.
Yet I still would warn investors about jumping into Twitter stock. The valuation of TWTR is at incredible levels. Assuming revenues double next year to $1.2 billion, the forward price-to-revenue multiple of Twitter stock would be at 38. Consider that Facebook and LinkedIn are well below 20.
For the most part, the TWTR valuation is banking on acceleration of revenue growth. However, this could prove to be difficult, especially since user growth has been flagging lately.
Basically, Twitter stock is an instant-momentum stock and will be under intense pressure to get standout results. But if it falls a bit short, the impact could be painful.
After all, just look at what’s happened to some momentum stocks this week — a la Tesla (TSLA) and SolarCity (SCTY) — that failed to live up to expectations.
More about TWTR and the Twitter IPO
- Should You Buy the Twitter IPO?
- 7 Reasons the Twitter IPO Will End Badly
- Twitter IPO – Beware of These 4 Risk Factors
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
