Despite what the market is doing these days, it seems as if Twitter is infallible. The shares of the social network has risen to a new 52-week high which hit more than double the company’s $26 IPO price in the prior month. Yet, with all the enthusiasm from shareholders, it is also possible that the shares will also be overextended.
The status of Twitter so far
Looking at the firm’s market capitalisation of roughly $28.5 billion, there is this impression that Twitter is raking in several billion worth of shares. Despite the billion-dollar mark may already be reached in the next year or two, sales are presently still sitting far below the mark. Last year, revenue for the company was able to land $316.9 million which may leave several investors thinking how such a relatively small company is worth so much.
To have a better view of the growth engine of twitter, we should consider the company’s sales over a precise period of time. Three years ago, revenue was at an estimated $23.3 million, which indicated growth of sales of over 1,019.8 % over the past three years. Should analysts be correct regarding the company’s revenue for the said year, therefore Twitter will report sales of around $638.3 million by year’s end.
In an interesting turn of events, Twitter is considered the only media site to experience a prolonged growth spurt. Similar companies have also benefited from the explosive online growth in turn able to advertise. Analysts are predicting that the growth trend will continue to push forward with online advertising on the rise significantly through at least the year 2015 as e-commerce continues to be a growing trend.
Could profitability become a major gridlock?
Investors are purchasing shares in various competing companies such as Twitter, Facebook and LinkedIn with high hopes that each will create a sustainable competitive advantage which will yield striking margins such as Microsoft and Apple. Although this is predominantly possible, early signs might indicate that there may be some potential difficulties in achieving the desired end results.
In each of the past three years, Twitter failed to become profitable from its business model. In aggregate, the company’s net loss was more or less $275 million and is predicted to rise once again this fiscal year. The good news is that part of this has been attributable to the management’s decision in developmental research to such a large extent, but investors will eventually demand for profit in the long run. Both Facebook and LinkedIn were able to perform fairly well with each managing to make a nice profit, however margins have been suppressed by researching and development costs.
By looking at the present data, it seems like Twitter is a high-soaring spectacle that enticed investors’ craving for growth. However, the growth we are talking about is not a bad thing such that shareholders need to be concerned regarding the price. Presently, investors in Twitter are paying more for net losses despite shares that don’t move to earn $90 million per year in order to make the company reasonably enticing.