Twitter IPO: 5 Hot Stocks To Watch Instead

Tickers in this article: FB GRPN SINA YELP ZNGA

Chris Lau, Kapitall: So Twitter announced its IPO last week. Speculate all you want, we’re interested in stocks you can trade now. 

Rumors around a Twitter IPO had been circulating for a while, including in this space, and last week the company confirmed everyone’s suspicions with a tweet. 

[Read more from Kapitall: Can a Twitter IPO Trump Facebooks?]

Twitter wrote on September 12 that “We’ve confidentially submitted an S-1 to the SEC for a planned IPO. This Tweet does not constitute an offer of any securities for sale.” Two questions ought to be asked by investors. First, is this yet another bubble and second, what is Twitter really worth?

Key Twitter numbers

Twitter has 500-555 million users and nearly 170 billion tweets. Revenue is projected around $600 million this year, although that pace is expected to slow this year. While the company provides little hard data about its user base, the top three Twitter users with the most followers are musical artists. According to Dashburst, the average individual user has just 208 followers.

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Analysis: be skeptical

When Twitter becomes a public company, it might be worth 25 times sales and 39 times trailing sales. As a public company, users may have about 200 followers on average, but should expect to see more promotional tweets filling their stream. This could hurt activity, but will help Twitter reach its sales targets on its first year as a public company.

Investing ideas

Despite all the hype, investors can only speculate about Twitter as a stock for now. So we looked at publicly traded companies similar to Twitter that investors can consider now – are all up sharply, except Zynga (ZNGA):

Do you see investment opportunities in these social media stocks, or are you waiting for Twitter? Use the list below as a starting point for your own analysis. 

1. Yelp, Inc. (YELP): Operates as an online urban city guide that helps people find places to eat, shop, drink, relax, and play based on opinions of locals in the know. Market cap at $4.05B, most recent closing price at $62.76.

Yelp has risen lately, helped by second quarter earnings that beat estimates. Bearishness was very high, with a squeeze on short-selling contributing to the rise (at least partly). The short float was 15.3% recently.