Tomahawk, WI 12/30/2013 (BasicsMedia) – Since IPO in November, Twitter Inc (NYSE:TWTR) has not issued any earnings or disclosed about its free cash flow levels. But the stock is rising, and this rise is now being contested by those who have come to be called as cynical investors. This group of investors has a question regarding the company’s valuation and what could be the reason behind the mind-boggling surge of the stock since the IPO.

Perhaps, it has to be recalled that Twitter Inc (NYSE:TWTR) launched its IPO when the share was trading at $26 and, only about 70 million shares were offered in the IPO. In recent times, the stock has hit above $70 per share. The stock is up 76 percent since December 1, and up more than 145 percent since its IPO. But there is no real value to support this price surge. Could Twitter Inc (NYSE:TWTR) be a bubble?

Analysts’ sentiments

There is no denying that Twitter Inc (NYSE:TWTR) has confounded even Wall Street with its mind-boggling rise. Many analysts confess that they haven’t seen something like Twitter in a long time.

Analysts agree that the stock is expensive and some have been cutting their price targets on the stock, since it breached $50 per share. Should this be a cause for concern to bullish investors?

It is known that Wall Street has on several occasions got it wrong with some stocks and in this regard, investors are undeterred by the negative sentiments issued by analysts on the stock. There is no doubt that Twitter Inc (NYSE:TWTR) is in a bubble territory. However, this doesn’t mean that the stock is going to stop going up later either today, tomorrow or during this week. It could rise and rise in the upcoming months as long as the investors believe in the company’s prospects.

The prospects

It may be recalled that Twitter Inc (NYSE:TWTR) has been around, for about 7 years and during this time the company has not given any profit to its investors. However, since going public, opportunities have increased for the company.

Recent studies have shown that the company’s future in mobile ad revenue is perhaps brighter than that of its main rival Facebook Inc (NASDAQ:FB). Not only that, Twitter Inc (NYSE:TWTR) is also poised to benefit from the shift into Internet video ad from television. Brand advertisers have been tracking the potential of Internet video ads and they are convinced that it could be more rewarding than the conventional TV ads.

Last month, Twitter Inc (NYSE:TWTR) announced a partnership with Comcast for the streaming of Internet TV content, so that its users can watch some premium programs. This is one of the attempts that the company is making to broaden its video ad revenue.

The fact that Twitter Inc (NYSE:TWTR) has continued to add more users to its network, since it is listed on NYSE is also a pointer to the fact that it is successful in its efforts to boost its user-count.  And this means that its display ad revenue will also be on the up.

Perhaps investors are reading a lot into these prospects to bet big on this stock. But again, what the company reports in its first quarterly earnings since listing, will determine whether the stock plummets or continues to soar.

Shares shortage

The shortage of Twitter Inc (NYSE:TWTR) shares available for trading is also another factor that is believed to be pushing up the price. But this push can also be seen to be a play of momentum investors. As things stand now, and without looking at the prospects, there is no basis for the stock trading at its current value.

By any means, the stock is extremely expensive, trading more than 39 times to the company’s 2014 estimated revenue of $1.1 billion.

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