The Deal: Putting a Value on Twitter's Promiscuity

NEW YORK ( TheStreet) -- As Twitter prepares for its $1 billion initial public offering, the company can look to fellow social media outfits Facebook ( FB) and LinkedIn ( LNKD) for tips on monetizing content provided by their hordes of subscribers. There is a catch, though.

While Twitter, Facebook and LinkedIn may have many users in common, Morningstar analyst Rick Summer observed that the nature of relationships on the services differ.

"When you look at the relationships in Facebook, they're family, friends and maybe professional," he said. "These are largely static."

LinkedIn's professional connections fit a similar, enduring profile.

"With Twitter," Summer explained, "I would describe the relationships as promiscuous."

The fleeting stream of communications, and the ease of following or unfollowing fellow users, renders Twitter liaisons less "durable" than those of Facebook or LinkedIn. Just because Justin Beiber has 45 million followers today, does not mean he will a year from now or 10 years from now.

"That does not mean that it is not powerful," Summers said of the micro-blogging service.

Twitter's second quarter advertising revenue come to 55 cents per monthly average user (MAU), the analyst observed, not far from LinkedIn's 60 cents per MAU, but well below Facebook's $1.41 per MAU.

There is room to improve, if Twitter can harness the fire hose of information on its site, build ad inventory and match it to the appropriate users.

"How do you get the correct inventory and figure out how to match to the appropriate user?" Summer asked. "They're just not there yet in terms of delivering this highly, highly personalized experience."

The very nature of Twitter, and the ephemeral quality of tweeting, make it difficult for the company to develop more durable ties between users.

Twitter is trying to play the fleeting character of the service to its advantage through an "interest graph," which takes note of users' whimsy and looks for trends in the tweets, follows, unfollows and other actions.

"We believe a user's interest graph produces a clear and real-time signal of a user's interests, greatly enhancing the relevance of the ads we can display for users and enhancing our targeting capabilities for advertisers," the company's October IPO prospectus stated.

Moreover, the company said that it's "assymmetric model" has value. While Facebook and LinkedIn have reciprocal user relationships that require consent between friends or contacts, Twitter users can follow whomever they choose, allowing for one person to have an audience of millions.

Twitter has not priced the shares it will offer to the public. Establishing the worth of social media companies can be difficult.

Twitters peers ranges from "modestly overvalued (Facebook) to inexplicably overvalued (LinkedIn)," as Morningstar's Summer described it in a recent note.

The Twitter IPO will test whether promiscuity deserves a premium.

-- Written by Chris Nolter in New York