NEW YORK (TheStreet) -- The Twitter initial public offering is quickly approaching. TheStreet's Jim Cramer told Debra Borchardt that Goldman Sachs, the lead underwriter, will have a tough task for pricing the stock because it needs to make sure investors don't overpay for Twitter.
He said Twitter does have impressive growth but it's important it's not overvalued as Facebook (FB) - Get Meta Platforms Inc. Report was when it made its IPO. Facebook is a holding in Cramer's charitable portfolio, Action Alerts PLUS.
So how much is too much? Cramer suggested investors shouldn't buy the stock if the company is valued over $20 billion.
He said that while Twitter is not like Zynga (ZNGA) - Get Zynga Inc. Report, which came to the market at its peak, it does not yet have the advertising models of Facebook, Yelp (YELP) - Get Yelp Inc. Report or LinkedIn (LNKD) . Yelp and LinkedIn also have strong subscription models.
We need to hear that Twitter has ideas in the pipeline and will potentially make an acquisition to boost its advertising model, Cramer stressed. It has a strong mobile presence but Twitter is not as exciting or growing as rapidly as Facebook.
So what happens if the IPO is a dud? If the stock initially pops higher on the first day of trading and then falls lower, Cramer would take a serious look at it, if the valuation goes below $20 billion.
-- Written by Bret Kenwell in Petoskey, Mich.
Bret Kenwell currently writes, blogs and also contributes to Robert Weinstein's Weekly Options Newsletter. Focuses on short-to-intermediate-term trading opportunities that can be exposed via options. He prefers to use debit trades on momentum setups and credit trades on support/resistance setups. He also focuses on building long-term wealth by searching for consistent, quality dividend paying companies and long-term growth companies. He considers himself the surfer, not the wave, in relation to the market and himself. He has no allegiance to either the bull side or the bear side.