Will Twitter see a Facebook slide?
(MoneyWatch) Twitter's (TWTR) IPO was a triumph, in the sense of a smooth event and a large jump in the stock from $26 to $44.90 at the end of its first day. But by the end of Friday, that price dropped to $41.65 and the pre-market price on Monday morning was below $41.
This is early in the stock's activity, but it is immediately reminiscent of another social media high flier, Facebook (FB), the only tech company that has a bigger U.S. IPO. Unlike Twitter, Facebook entered its initial public offering with a history of profits. However, that didn't prevent the price slide that ultimately took out half of the stock's value.
Even though the IPO just closed last week, is there any possibility that Twitter might see a similar decline in price? Many stocks do take a post-IPO tumble, which is why waiting 90 days to buy shares is often sound advice.
Sterne Agee gave Twitter a neutral rating, according to an email received by CBS MoneyWatch, with "shares already trading at a significant premium to its high-growth social media peers" and analyst Arvind Bhatia estimating an expected range of $25 to $32 in the next 12 to 24 months. The current price falls into Bhatia's $33 to $48 "upside range."
Pivotal Research analyst Brian Wieser downgraded Twitter to a sell rating, saying that the stock is "simply too expensive." He has a $30 target for the stock:
At a $45 price level (the stock opened at $45.10), the enterprise value is approximately $30bn...or almost the same valuation as Discovery Communications, and nearly the same valuation as CBS or the combined Publicis Omnicom Group...or even Yahoo (some will argue that Yahoo's stake in Alibaba is worth this much, too).
Enterprise value is the sum of the market capitalization -- which shows the combined market value of common shareholders -- as well as outstanding debt, any preferred shares, and minority interests (if any), minus cash and cash equivalent value. It's often considered a more accurate view of a company's financial worth.
For some other comparisons, Google's (GOOG) enterprise value is almost $292 billion. Facebook's is about $108 billion. Twitter's enterprise value is currently $22.5 billion. Facebook's trailing 12 month revenue is $6.9 billion, Google's is $57 billion. Twitter's is $534 million.
A lot of the value in Twitter is based on what Wall Street thinks that it should be able to do, although revenue growth in the company has already slowed and some of its main strength in generating revenue is largely incompatible with its heavy draw of mobile users. That is additional pressure on Twitter's prospects -- and those of its stock.