Twitter Inc’s share price could almost double in its first year as a listed company, a brokerage firm said, issuing a “buy” rating on the stock even before the online messaging service goes public.
SunTrust Robinson Humphrey analyst Robert Peck, the first to rate the stock, suggested Twitter could float at $28-$30 per share, and said it could reach $50 within a year.
Twitter allows its users to post a maximum of 140 character messages called “tweets” to share their personal thoughts and links to content with the public and their friends, or to promote businesses.
“It is important for investors to look at Twitter beyond just a 140 character text,” Peck wrote in a 76-page note.
Twitter’s planned IPO is one of the most anticipated since Facebook Inc’s coming-out party in June 2012. Despite posting big losses over the last three years, Twitter hopes to woo investors with its advertisement revenue growth.
The company, which started selling advertising only in 2010, received about 87 percent of its revenue from advertising in the first half of the year.
Twitter’s September acquisition of online mobile-ad exchange MoPub, which is viewed as its answer to Google Inc’s DoubleClick, and its advertising alliances with broadcasters would boost advertising revenue, the brokerage said.
Peck said one of the biggest opportunities for Twitter was to capture a part of the $200 billion global TV market with Amplify, which allows broadcasters to show video clips and ads through tweets coordinated with what is being shown on TV.
Twitter could make use of the search capability with a product similar to Google’s AdWords, where advertisers pay Google according to the number of clicks on the ads, the brokerage said.
Keyword targeting, a feature which was only rolled out in April, will help the company’s revenue, Peck said. He is rated four stars out of a possible five for the accuracy of his recommendations on internet companies by Thomson Reuters StarMine.
E-commerce and mobile apps are other areas Twitter could take advantage of to make revenue, Peck said. Three-quarters of its monthly active users are considered mobile users, Twitter said in a filing.
Twitter has not said how many shares will be sold or at what price.
Peck based his numbers on a float of 50 million shares, raising up to $1.5 billion, taking shares on issue to around 537 million.
He then calculated his share target based on 16 times enterprise value divided by revenue or 80 times enterprise value divided by EBITDA (earnings before interest, taxes, depreciation and amortization).
Twitter said in a filing there were 472.6 million shares of common stock outstanding and no shares of its preferred stock outstanding as of June 30.
Peck said Twitter is the dominant player in the “real time interest graph”, which provides a unique option that few others can match.
[NYDaily]