Twitter IPO: 5 Hot Stocks To Watch Instead

Chris Lau, Kapitall: So Twitter announced its IPO last week. Speculate all you want, we’re interested in stocks you can trade now. 

Rumors around a Twitter IPO had been circulating for a while, including in this space, and last week the company confirmed everyone’s suspicions with a tweet. 

[Read more from Kapitall: Can a Twitter IPO Trump Facebooks?]

Twitter wrote on September 12 that “We’ve confidentially submitted an S-1 to the SEC for a planned IPO. This Tweet does not constitute an offer of any securities for sale.” Two questions ought to be asked by investors. First, is this yet another bubble and second, what is Twitter really worth?

Key Twitter numbers

Twitter has 500-555 million users and nearly 170 billion tweets. Revenue is projected around $600 million this year, although that pace is expected to slow this year. While the company provides little hard data about its user base, the top three Twitter users with the most followers are musical artists. According to Dashburst, the average individual user has just 208 followers.

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Analysis: be skeptical

When Twitter becomes a public company, it might be worth 25 times sales and 39 times trailing sales. As a public company, users may have about 200 followers on average, but should expect to see more promotional tweets filling their stream. This could hurt activity, but will help Twitter reach its sales targets on its first year as a public company.

Investing ideas

Despite all the hype, investors can only speculate about Twitter as a stock for now. So we looked at publicly traded companies similar to Twitter that investors can consider now – are all up sharply, except Zynga (ZNGA):

Do you see investment opportunities in these social media stocks, or are you waiting for Twitter? Use the list below as a starting point for your own analysis. 

1. Yelp, Inc. ( YELP): Operates as an online urban city guide that helps people find places to eat, shop, drink, relax, and play based on opinions of locals in the know. Market cap at $4.05B, most recent closing price at $62.76.

Yelp has risen lately, helped by second quarter earnings that beat estimates. Bearishness was very high, with a squeeze on short-selling contributing to the rise (at least partly). The short float was 15.3% recently.

 

2. Groupon, Inc. ( GRPN): Operates as a local commerce marketplace that connects merchants to consumers by offering goods and services at a discount in North America and internationally. Market cap at $7.44B, most recent closing price at $11.24.

Groupon is up 145% in a 1 year period. The company is growing e-commerce sales rapidly. In Q2, e-commerce sales accounted for 40% of revenues, and grew 59% from the previous year.

 

3. Facebook, Inc. ( FB): Operates as a social networking company worldwide, building various tools that enable users to connect, share, discover, and communicate with each other on mobile devices and computers. Market cap at $102.32B, most recent closing price at $42.51.

Facebook crossed the $100 billion market capitalization valuation as investors grew bullish on its mobile growth ambitions. The company was set to release auto-playing video ads, but opted to delay until it could complete more testing.

 

4. Sina Corp. ( SINA): Provides online media and mobile value-added services (MVAS) in the People's Republic of China. Market cap at $5.35B, most recent closing price at $80.0.

Sina is a microblogging provider in China, and its shares are benefiting from news that Twitter will file an IPO. Sina had 54 million daily active users as of June 2013. The company said in August that it would release a new platform to compete with Tencent’s networking platform. The product would be a complementary offering to Weibo.

 

5. Zynga, Inc. ( ZNGA): Develops, markets, and operates online social games as live services on the Internet, social networking sites, and mobile platforms in the United States and internationally. Market cap at $2.45B, most recent closing price at $3.09.

Zynga shares are up by the least amount, even though its FarmVille 2 is one of the most actively played games on Facebook. Zynga faced a steady exodus of top talent at the executive level, putting its ability to turnaround operations into question. In August, the company restructured Zynga into divisions. The company’s new focus will include studios and publishing.

 

 

( Written by  Chris Lau, a Kapitall contributor.  Additional reporting by Emily Smykal, a Kapitall editor. Analyst ratings sourced from Zacks Investment Research, all other data sourced from Finviz.)

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