Twitter's Valuation in Perspective
The dust is beginning to settle on that first day of trading last Thursday, when nearly 118 million shares exchanged hands. Yesterday, during the fourth day of trading, volume fell to 6.3 million shares, a sizable number, but just 5% of day one's trading. It's still very early, but shares are down about 7% since the first day close, and 16% from the high price on that day.
Those investors who bought at the high can't be happy at this point, but unless you are able to get shares at the IPO price, it can be dangerous to take a position in the early days of trading, especially in such a high-profile and much-anticipated offering.
One thing is certain: the Twitter IPO went smoothly, and the right preparations were made by the exchange to make certain that there would not be a repeat of Facebook's first-day debacle.
But I'm still trying to make sense of Twitter's now $23 billion market cap, and 42.7 trailing 12-month price-to-sales ratio. Lest you think I'm a Twitter basher, I am not. I use the product, though probably not as much or as frequently as many others. It is a true innovation in communication and social media. It's the valuation that I'm questioning. Shiny objects often attract investors, but there's often a disconnect between price and value.
Consider that Twitter's current market cap is about the same as Chipotle