Twitter Inc (NYSE:TWTR) stock should have a much lower value than where it is trading presently, according to NYU marketing professor Scott Galloway. During a conversation at Ad Age Digital conference on Wednesday, he said that the traders are mistaken in valuing the company at its current market capitalization at $24.75 billion, which is 37 times its annual revenues.
Twitter has weaker growth prospects than LinkedIn
Galloway compared Twitter Inc (NYSE:TWTR) with LinkedIn saying that the latter is trading at about 20 times revenue, despite LinkedIn’s revenue streams being more diverse than Twitter’s. Twitter is heavily dependent on advertisers, in contrast to LinkedIn, which relies on advertising, job-seeking and subscription business, says a report from Business Insider.
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“We believe it’s vastly overvalued and that the love affair with Twitter is about to come to an end,” said Galloway. He went on to say that LinkedIn has advertisers compared to those of Twitter’s.
Galloway thinks that Twitter Inc (NYSE:TWTR) may stop earning revenues once advertisers stop exploring the new platforms, and instead chose to stick with one or two platforms. According to Galloway, the most popular platforms will likely be Facebook Inc (NASDAQ:FB), YouTube and Instagram, and social networks like Twitter, Foursquare and Pinterest would only get a negligible share of advertising.
Investors’ confidence undermined
Galloway suggested that two features necessary for a successful advertising platform is mobile first and strong visual component. He said that clients of platforms like Twitter are no longer interested in exploring the sites further, and would channel their resources towards Facebook, YouTube and Instagram. Galloway believes that there is a downward trend in shareholder value, and says anyone can do the math to see that that Twitter should not be worth more than $10 a share.
Back, in February, Twitter Inc (NYSE:TWTR) posted positive earnings, but failed to gain confidence of the investors with shares declining approximately 25%, slashing around $10 billion of the company’s market value, a day after the announcement of earnings. Investors were not confident on the stock performance after slow user growth reported. Sarat Sethi, managing director at Douglas C. Lane said that he has no idea over how Twitter will expand itself to more users beyond 140 characters.
The micro-blogging site reported 30% year over year surge in the average monthly active users totaling to 241 million compared to analyst’s estimate of 249.1 million.