Tomahawk, WI 01/10/2014 (BasicsMedia) – Twitter Inc (NYSE:TWTR) presents a unique dilemma to the analysts. They are unable to judge the exact valuations of this stock. Twitter is yet to declare its first public result. Such a dilemma is faced by all new IPOs but it assumes a more significant role in case of Twitter because of its price gain as well as the industry it is in.

Valuation Dilemma

Companies in the traditional industries do not suffer such a valuation dilemma, there are other sources from which data can be culled. The size of the industry, the competitors, and their performances – past and present, even the updates issued from time to time – these can be used as pointers. The internet related industry, particularly the social media platform is difficult to predict. The business model is very different and it is yet to mature. Many companies, with no revenue models get taken over for millions or even billions of dollars.

Valuation always compares apple to an apple. But the social media platform is different, each of the offerings is different, they target different segments and also operate differently. Even though Facebook Inc (NASDAQ:FB) and Twitter Inc (NYSE:TWTR) are in the same social media platform, their offerings cannot be substituted with each other. LinkedIn Corp (NYSE:LNKD) cannot be compared to either of these two.

Even though analysts are aware of these issues, they have attempted to value TWTR. And many of them find the stock to be overvalued.  The shares issued at $26 during the IPO are now trading at $57, just a couple of months down the line and they have been sliding down almost everyday since the last week or so. The first result is also a good one month away.

What Has Spooked The Analysts?

Internet has always proved the nemesis of analysts; remember the internet boom and busts of the past? Twitter Inc. (NYSE:TWTR) is also in a way responsible for this pessimism. Other companies come out with some updates or figures in between. TWTR has been silent on this issue. They have not released any data either about usage patterns or ad revenues. Analysts may have taken such a silence as a forewarning of some bad news. For once ‘Silence is Golden’ is being ignored. Secondly, there is growing realization that Twitter may not have attracted sufficient advertising revenues to turn profitable. Analysts estimate that the revenues may be around $217 million for the last quarter, a growth of almost 94%.

The moot question still remains, would these revenues justify its valuations. Only the final results can answer that question.

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