Analyst: Twitter Is Worth Half What the Market Thinks

Source: http://www.flickr.com/photos/psycho-pics/

Source: http://www.flickr.com/photos/psycho-pics/

Two more analysts have stepped off the Twitter (NYSE:TWTR) bandwagon. Shares of the social media company opened for trading on Monday down about 6 percent from their previous close at $64.83 and continued to slide in early trading after analysts at Morgan Stanley and CRT Capital downgraded the stock.

CRT Capital, which raised its price target for Twitter stock to $65 per share on December 17 with a Buy rating, downgraded shares to “fairly valued.” On Monday morning, that meant a price-to-sales ratio of about 70 and a market cap of $34.8 billion.

Morgan Stanley believes that shares are overvalued and downgraded the stock from Equal-weight to Underweight. The firm has a $33 price target on Twitter stock, which represents a downside of about 48 percent. “Twitter currently trades at a premium to peers and is above our bull case,” the firm said in a note. Morgan Stanley is looking for Twitter to trade at 14 times revenue and 84 times 2015 EBITA.

For comparison, Facebook (NASDAQ:FB) trades at a trailing price-to-sales ratio of about 19, and LinkedIn (NYSE:LNKD) trades at about 18. For some context, the median price-to-sales ratio of the entire S&P 500 is just about 1.4 and about 7.65 for all equities.

One reason why analysts at Morgan Stanley aren’t as bullish about Twitter as the rest of Wall Street — the median price target is $46, about 39 percent higher than Morgan Stanley’s price target — is that Twitter is in a lower tranche than Facebook and Google (NASDAQ:GOOG) when it comes to TV advertising dollars.

Serving as the go-to second screen for television is a pretty big part of Twitter’s value proposition. In its January 6 note, though, Morgan Stanley said it expects TV advertisers to turn first to more established platforms like Facebook and YouTube before turning to Twitter, at least for the time being.

Twitter reported a net loss of $133.9 million for the nine months ended September 30, up from $70.7 million in the year-ago period. Although revenue is growing rapidly, climbing 106 percent for the nine months ended September 30 to $422.2 million, earnings are expected to remain negative through 2014.

Wunderlich Securities analyst Blake Harper wrote in December that although “the company is growing revenues faster than its fastest growing peers and we do recognize the potential for the company to capture larger portions of the mobile and TV advertising market, it appears valuation metrics are irrelevant and that investors are betting aggressively on Twitter being the next great media-technology platform.”

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