Nov 07, 2013

Is Twitter overvalued at its IPO?

Twitter is a company that has never earned a single dollar in profit, as far as I know. Yet it priced its IPO at $26 per share, and as I type this just prior to the close of the market on Day 1, it is at $45.04. Is this a realistic value for Twitter? That’s a P/E ratio of something like 25 to 1.


There is often a lot of irrational optimism immediately following an IPO. Remember Zynga? Yeah, they are not doing so well now, even though their stock value shot up dramatically initially. Twitter is no Zynga, but a P/E ratio of 25:1 is pretty high. Still, Twitter doesn't really have any serious direct competitors, so it may be a better bet than some of the other recent IPOs. There was a decent write-up in Forbes about Twitter's IPO, if you want to hear about it from an investment perspective. 

I'd say so, but then again I'm very skeptical about investing in social media companies. People are fickle, and what is "hot" today can be abandoned by users for the next big thing. I wouldn't buy Twitter stock, but then again I'm sure a lot of other people will.
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