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) 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), which came to the market at its peak, it does not yet have the advertising models of Facebook, Yelp (YELP) 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.