Facebook Inc (FB), LinkedIn Corp (LNKD): Twitter Preps For IPO

With a growth rate of about 4.5 million MAUs per month, Twitter is set to end the year with about 255 million users. Hence, this is far short of expectations, and suggests that the company will not be able to hit its $580 million revenue target for this year.

Now, if we want to dig deeper, then Twitter has a user base that is comparable to LinkedIn, but LinkedIn Corp (NYSE:LNKD) has twice as much revenue as Twitter is expected to create in 2013. Thus, Twitter is not monetizing its users effectively, and is seeing slowed growth. To me, this sounds almost reminiscent of Facebook following its IPO, and there are concerns that will no doubt come to light in the months ahead.

Final thoughts
If we look at Internet-based technology stocks that have performed the best since their IPOs, we see a familiar trend of companies having great growth after being public. Zillow Inc (NASDAQ:Z) has been one of the best performing IPOs, as it began trading at $20 and now sits at $100 .

While the company is very expensive at 22 times sales, it has grown revenue to $152 million over the last 12 months, compared to just $30.5 million in the year prior to going public . As a result, its outlook remains bright, and investors continue to buy at elevated levels.

Then, there are those such as Groupon Inc (NASDAQ:GRPN) that have fallen 50% despite having revenue growth of 50% since the year prior to its IPO. Clearly, this disconnect in stock performance shows the level of growth that is expected for Internet-based technology companies when awarded such lofty valuations.

In the case of both Groupon Inc (NASDAQ:GRPN) and Facebook Inc (NASDAQ:FB), shares have done quite well as of late, showing that once the hype died, and expectations lowered, such stocks often make good investments. Based on what we know, this is the group that Twitter will most likely join. There are simply too many questions about growth, users, and at 24 times 2013’s sales, Twitter will be the priciest of the bunch.

Thus, if you are considering an investment in Twitter following its IPO, then beware of the risks, and the catalysts that push such stocks lower. Because in the case of Twitter, there are many signs of future losses to come.

The article Which Social Media Stock Trend Will Twitter Follow? originally appeared on Fool.com and is written by Brian Nichols.

Brian Nichols owns Facebook. The Motley Fool recommends Facebook, LinkedIn, and Zillow. The Motley Fool owns shares of Facebook, LinkedIn, and Zillow.

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