Facebook Inc (FB), BlackRock, Inc. (BLK) – Twitter Tweets: We’re Planning an IPO

A lofty valuation

Based on a private equity sale of Twitter stock to BlackRock, Inc. (NYSE:BLK) earlier this year, Twitter was valued at $9 billion, according to the Journal. If Twitter does post revenue this year in line with eMarketer’s estimates, that would put a price-to-sales ratio of 15.4 on Twitter. In this rosy market, however, Twitter may likely IPO at a much larger valuation than $9 billion. If it does IPO at premium to its $9 billion valuation, it’s going to be one very expensive stock. Already, Twitter’s private equity valuation prices the stock (based on eMarkter’s revenue estimates) at 15.5 — close to Facebook’s current valuation of 18.4 times sales.

Twitter must prove itself

It’s far too early to guess what valuation Twitter will IPO at, but a simple look at some of the challenges Twitter faces makes a poor case for the company’s durability. Even more, in order for the company’s likely lofty valuation to make sense, it must possess enduring characteristics that can support years of impressive growth.

Maybe the company will make a great investment at some point in the future. Or maybe the S-1 filings will have some surprising and convincing data that make the stock a buy right off the bat. But for now, Twitter must prove itself.

I love Twitter. But I doubt I’ll love the IPO.

What about you? Are you looking forward to Twitter’s IPO? Do you think it will make a great investment?

The article Twitter Tweets: We’re Planning an IPO originally appeared on Fool.com and is written by Daniel Sparks.

Fool contributor Daniel Sparks has no position in any stocks mentioned. The Motley Fool recommends BlackRock and Facebook. The Motley Fool owns shares of Facebook.

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