Twitter Inc (NYSE:TWTR) shares rose 4% on Tuesday, although they still have a ways to go before they hit their high again. But what’s happening with this stock and why are investors so excited about it? USA Today‘s Matt Krantz suggests that Twitter may simply be the stock to own this year, whether or not any rational basis can be found for owning it at current prices.
From Apple to Google to… Twitter?
He said in 2012, Apple Inc. (NASDAQ:AAPL) was the stock to own, and in 2013, Google Inc (NASDAQ:GOOG) was the one to own. He said now investors are “acting like 2014 is the year of Twitter.” However, this hasn’t been such an easy one for the stock so far. Great volatility remains in the company’s shares, which have only been on the market for a few months.
At its initial public offering, Twitter Inc (NYSE:TWTR) shares sold for $26 each. They climbed 145% amid last year’s bull market. This year, however, Twitter fell 11% through Monday trading. The stock partially recovered on Tuesday, rising 4%, and it could continue recovering today as shares are up another 1% in premarket trading. As Krantz notes though, Twitter’s earlier decline was likely part of the broader stock market decline.
Will Twitter justify its stock price?
He also notes that at this point, investors are just hoping that Twitter Inc (NYSE:TWTR) will be able to capitalize upon its massive user base. However, the micro-blogging site hasn’t even started trying out different types of advertising. While it’s true that Twitter continues to innovate new advertising products and experiment with different things, the company still has a long way to go in order to justify its current share price.
Twitter Inc (NYSE:TWTR) shares are trading at 56 times their tangible book value, while makes Twitter 367% more expensive than its more mature and already established competitor Facebook Inc (NASDAQ:FB). Twitter has yet to turn a quarterly profit and isn’t even expected to make a profit until 2015. The company will release its first earnings report as a public company in February, but will the company be able to meet the lofty expectations investors have set for it?