Twitter’s Underwriters Project Limited Share GainsSarah Frier
Twitter Inc., which soared 73 percent on its first day of trading, isn’t projected to gain much further in the next year, according to the banks that led its initial public offering.
Twitter is set to trade at around $43 a year from now, according to the average estimate of four underwriters -- Goldman Sachs Group Inc., Deutsche Bank AG, JPMorgan Chase & Co. and Bank of America Corp. -- which initiated coverage of the stock yesterday after a quiet period lifted. That isn’t much above today’s share price of $41.37 at the close in New York. The stock is up 59 percent since the microblogging company’s IPO last month.
The underwriters paint a picture of a promising company at a price that already reflects high expectations. Twitter, which is unprofitable and is more expensive than some of its Internet peers on a price-to-sales basis, needs to find ways to grow beyond its 230 million users and get better at serving them advertisements.
“We believe Twitter is a unique Internet asset with high revenue growth, competitive barriers, and significant upside potential as a key Internet platform, and it therefore deserves to trade at a premium to most Internet names,” Doug Anmuth, an analyst at JPMorgan, wrote in a note to investors. He rated the shares the equivalent of a hold with a $40 price target and added that “we believe Twitter is fairly valued at current levels.”
Jim Prosser, a spokesman at San Francisco-based Twitter, declined to comment.
Only two of Twitter’s underwriters -- Deutsche Bank and Goldman Sachs -- recommended buying the stock. Morgan Stanley, also an underwriter, didn’t give a target share price and said the company’s success is priced in, rating it the equivalent of a hold. Bank of America placed the equivalent of a sell rating on the stock.
Twitter went public on Nov. 7 at $26 a share, after bumping up its offering price. While the company is ramping sales quickly, it is losing money and faces slowing user growth.
For the third quarter, Twitter’s revenue more than doubled to $168.6 million from $82.3 million a year ago, according to a company filing. Net loss expanded to $64.6 million from $21.6 million. The company is deriving 70 percent of advertising revenue from mobile devices, compared with 65 percent in the second quarter.
A Bloomberg Global Poll of investors last month found that 68 percent of respondents anticipate Twitter will decline over the next six months.