Twitter Inc (NYSE:TWTR) stock has plunged about 47% from its December 26 peak of $74 to close Friday at $39. While many would consider the stock inexpensive at this level, Barron‘s believes Twitter is still overpriced. It is trading at a big premium compared to other Internet stocks based on the price to sales ratio. The microblogging company is valued at about 20 times its estimated 2014 revenue of $1.225 billion. In contrast, Facebook Inc (NASDAQ:FB) is trading at a relative bargain of 12x its projected 2014 revenue.
Twitter will still trade at a premium after falling to $30
Barron’s noted that Twitter Inc (NYSE:TWTR) seems to be “a long way from profitability.” A big concern around the San Francisco-based company is its slowing user growth. Despite Twitter’s efforts to make its platform more appealing, the number of U.S. monthly active users of 57 million appears to be plateauing. Barron’s said Twitter’s “quirky format” makes it difficult for the company to become a mass-market medium like Facebook Inc (NASDAQ:FB). The company’s user base grew at just 6% QoQ during the latest quarter. However, Twitter is doing well on advertising front. Its ad revenue per 1,000 timeline views almost doubled to $1.44.
Barron’s said Twitter Inc (NYSE:TWTR) shares could drop about 25% to $30. But the stock will still be trading at a premium to Facebook Inc (NASDAQ:FB) based on P/S ratio. Notably, Barron’s had warned investors not to pay more than $30 for Twitter shares during the company’s IPO in November. But the stock’s upward movement in the last two months of 2013 surprised everyone.
Twitter’s massive stock compensation a cause of worry for investors
What investors seem to be ignoring about Twitter Inc (NYSE:TWTR) is its massive stock compensation to employees. The company’s 2014 stock compensation is estimated at $665 million or 40% of its total operating expenses. That’s perhaps the highest percentage among the technology and Internet companies. Twitter has 2,700 employees, and the stock compensation works out to 250,000. The company’s enormous compensation should be a cause of worry for investors as it shows Twitter management’s willingness to heavily dilute shareholders.
Twitter Inc (NYSE:TWTR) shares plunged 1.28% to $38.52 in pre-market trading Monday.