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Why Twitter Is Worth More Than $26 a Share

Tickers in this article: TWTR

NEW YORK (TheStreet) -- Twitter is set to go public Thursday with an initial value of $14.2 billion, based on the share price of $26. But one analyst thinks it's worth significantly more than that.

Cantor Fitzgerald analyst Youssef Squali is initiating coverage on the name with a "buy" rating and a $32 price target, noting that "Twitter is a high-velocity and efficient communication platform that is highly complementary to traditional media outlets (especially TV), and as such fulfills an important unmet need."

Though Twitter, led by CEO Dick Costolo, isn't profitable yet it is growing exceptionally fast. Twitter reported $422 million in revenue through the first nine months of 2013, an increase of 120% from year-ago levels. About 70% of the company's advertising revenue comes from mobile, an excellent sign given it is primarily thought of as a mobile-first experience. However, GAAP net losses widened approximately 90%. Adjusted EBITDA grew to over $30.7 million through the first nine months of 2013.

Squali believes that revenue could grow in excess of 50% annually, with the company capable of achieving an EBITDA margin of approximately 40% over the next five years.

Twitter's user base has grown 68% a year over the last three years to 231.7 million users; 52.7 million were in the United States and 179 million were internationally, up 30% and 41%, respectively, from the three months ended Sept. 30, 2012.

Though that's significantly smaller than Facebook and its 1.19 billion users, Squali believes Twitter's user base is exceptionally valuable "given its unique real-time, one-to-all distribution capabilities, its growing userengagement and high monetization potential."

--Written by Chris Ciaccia in New York

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