NEW YORK (TheStreet) --The big news of the week is the Twitter initial public offering this week. Its ticker symbol will be TWTR.
Twitter's IPO is similar to Facebook's (FB). There are questions about valuation, a lot of excitement about being able to own shares of an important social media company, and fear of the stock going up too high too soon or initially falling out of bed like Facebook's.
Unlike Facebook when it went public, Twitter is not yet profitable. As you will see, investors here will have to tread carefully in the first few days after the IPO, as they would for any speculative investment.
Earlier this week the estimated pricing of Twitter's IPO was raised from a range of $17 to $20 to $23 to $25 based on demand for the shares. It should not be a surprise if the deal is priced even higher than that.The big driver here is Twitter's over 200 million users, and hope that it can grow into Facebook-like user numbers -- Facebook has one billion users. Also, Twitter is in the early stages of monetizing the business with promoted tweets. There are hopes and expectations Twitter will find additional sources of revenue.
Revenue estimates for 2014 are $1 billion, which would put the price to sales ratio at 13, in line with LinkedIn (LNKD) and Facebook. Even though the price to sales is in line with other social media companies, it is still expensive. Generally speaking, the potential for growth that is greater than the broad market is going to be more expensive than the broad market. Jim Cramer is worried the stock could open at $45 to $50 per share, which he feels is too expensive. Investors considering buying the stock should have their own line in the sand, a price they will not exceed for buying shares. Sticking to a plan might be easier said than done if the IPO opens high and keeps going. This could trigger a greed response that is too great to resist. Although not disciplined investing, investors who cannot help themselves could consider putting in just 25% of their original target amount if the stock is trading higher than hoped.
If the stock ends up dropping, then there is still capital to commit; if the stock keeps going higher, then at least some exposure was gained.