Twitter Inc (TWTR) Highly Deviated From Its Fundamentals

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Twitter Inc (NYSE:TWTR) shares have more than doubled since the company went public at $26 on November 7, and the stock has been highly volatile since day one, going up and down drastically without any change in the microblogging site’s prospects. For example, shares gained 76% since December 1 through last Thursday. But fell 13% on Friday to close at $63.75. Today, the stock is down a further 4.22% in pre-market trading to $61.04.

Other startups want to be next Twitter

What’s really happening with Twitter Inc (NYSE:TWTR) is that there are few long-term investors (sensible). It’s just a field play by momentum traders. At this point, fundamentals and valuations don’t really matter. About 140% rise in its price since the IPO has prompted other start-ups like Snapchat to stay independent, hoping that they could be the next Twitter Inc (NYSE:TWTR). Snapchat recently rejected a $3 billion offer from Facebook Inc (NASDAQ:FB).

Twitter Inc (NYSE:TWTR)’s revenues are growing at triple digit rates, but the company is still losing money. It’s trading at a much higher valuation than well-established Internet giants like Google Inc (NASDAQ:GOOG). The stock has gone up since the IPO without any major promise, financial information or news. Even analysts who were extremely bullish on the stock at the time of public offering don’t understand why the stock has gone so high in less than two months. And why an investor should or would buy Twitter Inc (NYSE:TWTR) shares at current levels.

Will a sensible investor buy Twitter at current prices?

Twitter Inc (NYSE:TWTR) is set to generate $639 million in revenues with a loss of $0.18 a share this year. Revenues are expected to reach $1.1 billion next year, still suffering a loss of $0.04 a share. Despite expected losses, Twitter Inc (NYSE:TWTR) is trading at 35 times its estimated revenue for 2014. In contrast, Facebook Inc (NASDAQ:FB) is valued at 13 times its forward revenue estimate.

The stock is driven by the company’s potential prospects that are years away. According to a survey by AdAge, Twitter Inc (NYSE:TWTR) is likely to benefit from the advertising dollars shifting from TV to Internet, and growth in mobile advertising. But a sensible businessman (and an investor), is unlikely to pay upward of $35 billion for a business that is still losing money.

Twitter Inc (NYSE:TWTR) shares were last down 5.10% to $60.50 in pre-market trading.

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