Twitter Inc.’s (NYSE:TWTR) big day has come and gone. The social media platform is now officially public, and the company made its debut on the markets with as much (or more) fanfare than anyone could have predicted. Shares, priced at $26 on the eve of its initial public offering, opened for mid-morning trading at $45.10 and closed Thursday at $44.90.
There’s a lot to unpack from Twitter’s historic IPO. At $26 per share, the company was valued at about $18.3 billion, but when the stock shot up more than 70 percent on Thursday, its market cap quickly climbed to about $24.4 billion. In a vacuum, this feat may not seem particularly noteworthy. IPOs — particularly those of Internet and social media companies — often experience enormous price gains on their first day of trading.
Data compiled by Forbes shows that of all the IPOs priced since September 12, 19 have returned more than 20 percent, averaging a 69 percent gain over just a few weeks. On average, these stocks opened for trading on the day of their IPO at a price 49 percent higher than their IPO price and experienced about 9 percent further upside on average for the rest of the day.
But Twitter — perhaps as expected — posted an above-average one-day pop of about 70 percent. At the Thursday closing price of $45.10 per share, the company was looking at a trailing price-to-sales ratio of 45.8, which is enormous. Compare this to Facebook Inc. (NASDAQ:FB), which opened at a price-to-sales of 26, and LinkedIn Corp. (NYSE:LNKD), which opened at a price-to-sales of 14.5. Opening-day forward price-t0-sales were 22, 11.2, and 11.7, respectively.
This means that right now, investors are willing to pay a lot more per dollar of Twitter revenue than per dollar of Facebook or LinkedIn revenue. The obvious question, then, is this: Is this justified?
The answer, as extrapolated from analyst coverage, is a fairly firm “no.” The stock is exciting and Twitter appears by all means to be a solid company with great growth potential, but generous valuations put the stock at about $33 in 12 months. That’s the price target provided by RBC Capital analyst Mark Mahaney, who rates the stock an Outperform.
Michael Pachter from Wedbush Securities is a little more bullish, at $37 per share (Neutral rating). Arvind Bhatia from Sterne Agee thinks the stock is worth far less at between $25 and $32. Brian Weisser puts the price 12 months out at $30.
“With a price that pushes into the high $30s and beyond, Twitter is simply too expensive,” Weisser told The New York Times.
For a little context, Facebook stock was down 31 percent 12 months after its IPO, while LinkedIn was up 5 percent.