This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Here's Why Twitter Is Worth $65 a Share (Update 1)

Updated from 9:17 a.m. to include additional information in the seventh paragraph.

NEW YORK (TheStreet) -- Twitter (TWTR) has been one of the most widely talked about stocks since the company's IPO in November. Now, Goldman Sachs is boosting its price target ahead of the company's first earnings report next month, noting there's been "significant acceleration" when it comes to innovation in the past quarter.

Goldman Sachs analyst Heath Terry raised his price target to $65 from $46, and reiterated his "buy" rating, noting almost four times the number of enhancements over the past quarter to drive user growth, engagement and an increase in monetization. "While certainly the result of prior development, we believe this accelerating pace is more indicative of the company's ongoing capabilities now that site stability issues have been resolved," Terry wrote in the note.

TWTR ChartTWTR data by YCharts

Twitter has certainly been a volatile stock since going public in November, reaching a high of $74.73 on Dec. 26, only to drop $10 the next day. Since that time, it's been on a roller coaster ride, with little for traders to go by, outside of information released in the company's S-1 filing. The company is set to report earnings on Feb. 5, giving investors their first look at Twitter's quarterly results since it became public.

Shares of Twitter were gaining in Monday trading, 3.2% to $58.81.

Analysts surveyed by Thomson Reuters are expecting a loss of 3 cents per share on $217 million in revenue for the fourth quarter.

Terry noted that Twitter launched 23 distinct product enhancements in the fourth quarter, with some involving direct messaging, TV trending, discovery, timelines and photos. While much has been made of Twitter's revenue concentration (about 80% of revenue comes from advertising), the company's ad products are still in their early stages and Terry believes a lot of the innovations surrounding keyword targeting, retargeting and broad match targeting will help boost monetization. As such, he boosted his revenue and EBITDA estimates from 2013 to 2015 by 10%, and 9%, respectively.

He now expects Twitter to generate $641.2 million in revenue in 2013, up from a prior view of $630.7 million. He also expects Twitter to have $1.23 billion in sales in 2014, and $2.5 billion in 2015. Adjusted EBITDA for those years are now expected to be $45.2 million, $136.6 million and $657.3 million, respectively.

"The enhancements include incremental improvements in existing ad products and targeting capabilities similar to the evolution of Google's adwords platform, improving usability and discoverability, scaling initiatives internationally, and potentially high impact products like retargeting and custom audiences," Terry wrote in his note. "These 4Q innovations follow the introduction of Twitter Cards in 3Q and TV initiatives like Amplify and TV ad targeting in 2Q."

Some of Twitter's recent product innovations have been focused on increased interaction, such as "direct access to direct messages (DMs) via the navigation bar at the bottom of the app," as well as sharing photos via DMs, something that could not be done before. There's also been a push toward multiple timelines, which would show trending TV shows and photos, new uses for Twitter as a news source (reading lists, related headlines) and the continued improvement of Twitter's search engine, which might be its most important feature, and could be why Google (GOOG) tried to acquire the company a few years ago.

Google ultimately wound up indexing Twitter's tweets into its search engine, but that deal fell apart, much to the chagrin of Internet users (including yours truly).

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,943.81 +28.74 0.17%
S&P 500 1,967.57 +2.89 0.15%
NASDAQ 4,415.49 +19.2860 0.44%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto
Advertising Partners

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs