Look up in the sky, is it a bird? No, it’s Twitter’s soaring shares
SAN FRANCISCO -- Wall Street is chirping about Twitter, which seems to be defying gravity.
Shares are setting record highs in midday trading Tuesday, soaring above $50, despite mixed reviews from analysts.
The cause of investor enthusiasm: Twitter’s move into more targeted advertising that has been a boon for Facebook.
Analysts say these ads are potentially very lucrative for social networks under pressure from investors to wring more revenue from users.
Twitter said last week that it was rolling out retargeting ads for its more than 230 million active users.
And the move seems to be impressing Wall Street on the heels of Twitter’s highly successful initial public offering last month.
With the new service, called “Tailored Audiences,†marketers can reach consumers who have shown an interest in their brands. Twitter began testing the service in July.
Even so, analysts are urging caution.
Justin Post of Bank of America Merrill Lynch initiated coverage of Twitter with a “sell†rating, saying even before this most recent surge that the stock’s price is overinflated.
One week after the company went public, Scott Kessler, an analyst at S&P Capital IQ, also initiated coverage of Twitter with a “sell†recommendation, and he reiterated his skepticism last week.
“We see considerable competition, operational risks, and an excessively valued stock, and view the past two days of gains as enhanced selling opportunity,†Kessler said.
Steve Symington over at the Motley Fool chimed in on Monday.
“To be sure, the new initiative should go a long way toward improving Twitter’s value proposition for advertisers, so it’s hard to blame investors for their optimism,†he wrote. “However, with Twitter stock currently trading at the highest point since its IPO, and more than 45 times sales after today’s pop, I’d personally prefer waiting for a pullback before establishing any long-term positions.â€
The reason for their skepticism: The seven-year-old company has yet to turn a profit. And its opening price of $45.10 –- 73% above its IPO price -- valued the company at $31 billion.
Twitter is expected to make $1.1 billion in 2014.
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