Since its initial public offering, Twitter (NYSE:TWTR) has been a popularly debated stock among investors. We received an excellent question about the company from Fool member Rosi Reddy, who asks "What's your Foolish take on Twitter? Will it reach $100 or above by end of this year?" In this video, Motley Fool Stock Advisor Analyst Brendan Mathews answer's Rosi's question and provides his thoughts on Twitter. Here's some of the main points:
$100 per share in 2014?
Today, Twitter is priced at roughly $62 per share. Will it run up over 60% to $100 per share over the next 11 months? Honestly, I (Brendan here) don't know. In the short term, the only thing that I can guarantee about Twitter's stock price is that it will fluctuate. At the Motley Fool, and on Stock Advisor, the premium service that I work on, we're quite loathe to make short-term predictions about stock prices. Short-term stock prices are nearly impossible to predict, so we focus on finding great businesses that are appropriate for long-term investors. So is Twitter a great business that's worth holding long term?
The power of Twitter
In this age of social media and digital communication, Twitter is a global gathering place with more than 230 million monthly active users. I use Twitter (@TMFWillSommers, if you want to follow me) on almost a daily basis -- it's a great way to find and share information. And because it's such a powerful platform with a large, engaged audience, it's clearly attractive to advertisers. Twitter is still in the early innings of monetizing its users, but the company has made great strides, particularly in mobile advertising. Today, 70% of its ad revenue comes from mobile devices. I expect mobile advertising will be a huge growth market over the next five years, and Twitter is well positioned to capture a portion of that growing market.
A key caveat
While Twitter has lots of potential, it doesn't have much in the way of current business -- that's pretty clear if your spend more than a few minutes reviewing its financial statements. It is a $34 billion company with no earnings that is trading at a huge multiple of sales. And, as the future is truly unpredictable, it's not clear that Twitter will ever live up to its potential.
Twitter could be could be a big winner or a big loser. It doesn't lack for potential or opportunity, but it's hard to say if the company will ever capitalize. Thus, I'd advise Twitter investors to size their positions to reflect the risk and wide range of potential outcomes.