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Twitter IPO Provides Boost to Social Media Secto


By TDM Financial

Twitter Inc.’s
(NYSE: TWTR) initial public offering this week couldn’t come at a better time
for investor interest in social media. With the Global X Social Media Index ETF
(NYSE: SOCL) trading up more than 50% since January, investors have been very
bullish on the social media space, characterized by high-growth,
consumer-facing technology companies. And, the micro-blogging network’s IPO
could provide a further boost to these valuations over time.

Tremendous Interest in Twitter’s IPO

Twitter’s IPO
began trading on Thursday, November 7, 2013 with investors asking for 30 times
the number of shares that were on offer, according to Reuters.
With its $14.4 billion offering, including likely overallotments, the company’s
public offering will become the second largest Internet offering in the U.S. after
Facebook Inc.’s (NASDAQ: FB) $16 billion IPO last year and ahead of Google
Inc.’s (NASDAQ: GOOG) IPO back in 2004.

Analysts have
also been very bullish on the newly minted company’s stock, with 12-month price
targets ranging from $29.00 to $54.00 per share, compared to its $26.00
offering price. According to Morningstar’s Rick Summer in a research note
published late last week, “Twitter has only just begun to turn on its
monetization engine for more than 230 million monthly active users,” which
could suggest significant potential upside over the long-term.

Twitter Could Boost Valuations

reported revenues that grew from $28.3 million in FY 2010 to $316.9 million in
FY 2012, with a net loss that expanded from $(67.3) million to $(79.4) million,
in its S-1
with the SEC back on October 3, 2013. The loss comes on the heels of
a significant increase in research and development and sales and marketing, as
opposed to selling, general and administrative expenses, which suggests that
the firm is intentionally operating at a loss to reinvest in growth.

With a market
capitalization of around $18 billion at $26.00 per share, the company is
valuing itself at roughly 56x its trailing revenues. This figure is
significantly higher than many other social media stocks that average a
price-to-sales ratio of around 6.7x (Facebook’s price-to-sales ratio stands at
an above-average 18.8x). In the end, Twitter’s higher valuation could end up
increasing the valuations seen at many other social media stocks.

Looking for Value in Social Media

looking for the best value in social media may want to shy away from the
headlines and look towards micro- and small-cap stocks in the space. Many of
these companies are trading well below their industry peers, since they do not
share the same level of publicity or exposure to institutional investors. But over
time, these growing companies could eventually up-list to the NASDAQ or NYSE to
improve their exposure and unlock real value for their shareholders.

Inc. (OTCQB: CRWG) is a great example of a micro-cap stock in the social media
space that appears significantly undervalued with a market capitalization of
just $5.8 million. With over 20 million registered users on its network, the
company created and maintains one of the largest networks of forum communities
on the Internet.

The company’s
discount is very apparent in its price-to-book ratio of just 0.3x, suggesting
that the stock is trading at less than its liquidation value, while its
price-to-sales ratio remains at a modest 2.7x compared to Facebook’s 18.8x or
Twitter’s 56x figure. If adjusted to the industry average multiple of 6.7x
price-to-sales, CrowdGather’s shares would be priced at $0.20, while a “fair
value” price-book ratio of 1.0x would equate to a share price of approximately
$0.25 per share.

While most
investors are looking towards large social media stocks like Twitter and
Facebook, value investors may want to look towards smaller companies like
CrowdGather Inc. Increasing valuations in the social media space could help
companies like these close their valuation discounts and ultimately unlock
significant value for shareholders. And to put the two companies into
perspective, CrowdGather’s entire market capitalization is equivalent to a move
of less than $0.01 per share in Twitter’s stock, which now trades at about $46.00
per share, or $26 billion, above its IPO price of $26.00 per share, or $16

More Information


Recent SEC Filings 

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