Twitter IPO

Twitter IPO Date: 15 November

For those of you who are interested in the markets will not be unaware of the impending Twitter IPO. The IPO date has now (supposedly) been leaked at 15th November at a price range of between $17-$20. As such, I thought it was time to share my analysis and advice as to whether you should try to invest in the Twitter IPO.

Twitter Problems

The first thing to mention is that Twitter has not made a profit since inception. It has lost money every year in the six years  since it's inception.

Secondly, Twitter has 215 million users and yet it struggles to convert all those users into profits. It isn't clear whether the potential smartphone market of 1.2 billion users will also become Twitter users, providing a natural revenue boost. Making serious profits from Social Media advertising is a fairly new and untested market with mammoth players such as Google, Facebook, and Linked'In as competitors.

Twitter IPO Pros

Ignoring the lack of profit for the time being, it should be noted that the revenue growth numbers are impressive. In 2010, the Company was making $25 million, in 2011, $100 million, and by 2012, $350 million. This year the Company looks set to double that again to $700 million. These are impressive growth figures and with news out yesterday that Facebook was able to grow its revenues in the current year by 60%, only increases the potential for Twitter to follow suit, potentially increasing its revenues to over $1 billion by next year.

It is very difficult to value a company that makes no profit. As such, one of the simpler valuation techniques is to look to other similar Companies that are already traded in the market place. If we look at Facebook, the Company is valued at about $100 billion. Twitter is currently being valued at the higher end, at $12 billion, almost one tenth of the value of Facebook. Furthermore, Twitter is being valued at about one third of the value of Linked'In. Linked'In is currently valued at about 150 times revenue, Facebook at a rough 50 times revenue. At the current potential valuation, Twitter will be worth about 17 times revenues. This would appear cheap relative to other Social Media Companies.

Twitter also seems to be better embedded within it's own niche market. It is widely used by celebrities and the wider media alike, rather than other Social Media Companies which seem to depend on usership of regular people. Twitter, on the other hand should be able to establish itself a little more firmly if it associates itself with established media arms.

Twitter Investment

Should you invest in Twitter? If you only invest for dividends, forget it in the short term. Whilst the Company generates cash, it's losses will prevent it from paying any dividends for the next few years. If you are looking for an income from your shares then Twitter should e avoided.

If you are able to find a broker who can get you the shares upon IPO inception then I think the shares are definitely worth a place in a portfolio. With all the hype, it should definitely increase in value over the next year from its origins of $12 billion. 

However, if you are only able to purchase the shares after they enter the market and are already being traded, I would only buy if the price falls within the first few weeks. If the price rises then DON'T try to ride a wave up, you will only drown. If the price rises then you've probably missed the opportunity to make money.

Twitter - My Investment Plan

So, I'm currently in the process of trying to find a broker who will be able to deal in the Twitter IPO. Failing that I will aim to have about £4,000 ready in a stocks and shares trading account ready to buy if the price falls below it's IPO value.

Good luck. Feel free to share your thoughts below.

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