Back to top

Real Time Insight

Twitter's (TWTR - Analyst Report) much-anticipated IPO appears to have been a success. The stock opened smoothly on Thursday morning and immediately jumped more than 70%. It has been hovering around the mid-$40s in early trading.

But I will not be buying the stock anytime soon myself.

Here are 3 reasons why:

1. Most of Twitter's Users are International - and Advertisers Don't Care About Them

77% of Twitter's 232 monthly active users (MAUs) come from outside of the United States. But just 26% of Twitter's revenue comes from overseas. That tells me that advertisers find very little value in the vast majority of Twitter's users. And guess where Twitter's user base is growing the fastest? Yep, overseas.

2. A Tsunami of Stock-based Compensation Expense is Coming

Like many young tech companies in Silicon Valley, Twitter compensates its employees in part through stock options. While stock-based compensation is admittedly hard to value with any precision, simply ignoring this cost seems naive to me. And if you decide not to stick your head in the sand regarding this expense, you'll see that Twitter has a lot of it hitting its books soon.

Buried deep in Twitter's S-1 filing is this gem: it has over $800 million in unrecognized stock-based compensation expense that it expects to recognize over the next 4 years. According to the company, this "will have a significant negative impact on our ability to achieve profitability on a GAAP basis in 2013 and 2014."

Just how big is this $800 million in stock-based compensation expense? It's more than Twitter's total revenue over the last 12 months ($534 million)! Yikes.

3. It's Too Expensive - Even for a Social Media Stock

About the only valuation metric appropriate for Twitter right now is the price/sales ratio. And given a stock price of $46, Twitter trades at a whopping 60x revenue (ttm; per diluted share). That's significantly higher than peers like Facebook (FB - Analyst Report) and LinkedIn (LNKD - Analyst Report), which both trade at a not-so-cheap 18x revenue.

So what are your reasons for buying or not buying Twitter? Chime in below!

Zacks Releases Their 7 Best Stocks for September, 2014

These 7 were hand-picked from the list of 220 Zacks Rank #1 Strong Buys with earnings estimate revisions that are sweeping upward. Their stock prices are expected to rise sooner than the others.

Today, this Special Report is available to new visitors free of charge.

Close This Panel X

Please login to or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research


Are you a new Zacks Member or a visitor to

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
PLANAR SYST… PLNR 4.44 +5.21%
BITAUTO HOL… BITA 81.71 +5.12%
CTPARTNERS… CTP 16.66 +4.26%
CHINA BIOLO… CBPO 47.91 +3.30%
MALLINCKROD… MNK 72.94 +2.85%