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Twitter IPO Isn't Just Sexy, It's Also a Value Play

Tickers in this article: FB LNKD

NEW YORK  (TheStreet) - Analysts valuing the shares of Twitter say the popular micro-blogging site may be a bargain ahead of its upcoming initial public offering, which according to a recent filing, will list 70 million shares at a range of between $17 and $20 a share.

Twitter will sell up to $1.4 billion in stock in a share offering that would value the fast-growing media site at $10.9 billion using the high end of the firm's price range and a total of 544.7 million outstanding shares.

Recent analyst valuations on Twitter, however, peg the firm's shares closer to $30 apiece.

Sterne Agee analyst Arvind Bhatia said in a Monday client note that Twitter could be worth between $25 and $32 a share in the next 12 to 24 months, respectively.

In a bullish scenario where the firm's advertising and data licensing platform impresses its partners, Bhatia said Twitter could be worth as much as $48 a share. Were Twitter's execution to disappoint investors, as Facebook did in the wake of its blockbuster $16 billion May 2012 offering, Bhatia pegs the company's value as low as $13 a share.

"As such, if the IPO is priced in the $17 to $20 range, shares would appear attractive from a risk-reward standpoint," Bhatia wrote.

The analyst highlights Twitter's scale among its 232 million existing monthly active users and its value proposition to prospective advertisers and partners in the publishing and media industries as a driver of the firm's worth. Bhatia also notes that Twitter's usage is tilted heavily towards mobile devices with 76% of its users accessing the network via mobile.

Twitter is also in the early stages of its international revenue growth. Currently, international users account for 77% of Twitter's overall user base but just a quarter of the firm's overall revenue.

Bhatia, in valuing Twitter at between $25 to $32 a share, assumes the firm's advertising revenue growth will be 64% and 45% in 2014 and 2015 respectively, while its data licensing revenue growth come in at 25%. He also expects Twitter will exercise an over-allotment that will bump its IPO to 80.5 million shares, or an offering worth in excess of $1.6 billion.

The analyst also notes that his forecasts for Twitter's expected revenue and share prices value the firm at 12 times its 2014 sales, in line with fast-growing internet properties such as Facebook, LinkedIn , and YELP . Whether or not Twitter can record strong revenue growth in coming years will govern the company's share price, according to Bhatia's forecasts.

Pivotal Global Research analyst Brian Weiser rated Twitter a 'Buy' with a $29 a share price target in a Monday note to clients. The analyst highlighted Twitter's 35%-to-40% adjusted EBITDA margins, a non-GAAP accounting metric, as one reason for optimism.