It hasn't even started trading yet but the price of Twitter stock is already rising. The company raised the price range for its IPO to $23-$25 a share from $17-$20 on Monday night, and the actual offering price could even top that.
"I think they will price above the range, if they don't actually up the range [again]...something north of $25," says The Daily Ticker's Henry Blodget.
Bloomberg is reporting Tuesday that Twitter's IPO is already several times oversubscribed at $25 a share, making it likely it will price above $25. Twitter is expected to set the offering price Wednesday afternoon and start trading Thursday.
Given the growing momentum, is Twitter a good buy at the IPO or will it disappoint like Facebook (FB) did after its IPO, taking 14 months just to get back to its offering price?
"The biggest thing Twitter has going for it [as an IPO] is the fact that it is currently losing money," says Blodget. "When Facebook went public it had a 50% operating profit margin -- all the upside was already in Facebook. Twitter has basically no costs. As they continue to layer on revenue that margin is going to swing to profitability and ramp up to something like 50%."
To be sure, Twitter has been losing money. The company reported a $64.6 million loss in the third quarter, nearly three times its loss the previous third quarter, though revenues more than doubled to almost $169 million.
Still, Blodget isn't that concerned. "If the margin goes up and revenues continue to grow at 100% a year, earnings are going to at a spectacular rate," he says. In the long run, "if you can find something that tens of millions of people like to do and spend time with ultimately there are ways to monetize it."
That said, Twitter shares will ultimately be constrained if the growth rate of users, now numbering close to 200 million--continues to slow. "They have not broken out beyond celebrities and sort of the techno media elite," Blodget says, stressing that he is not recommending individual investors buy Twitter's IPO this week. "Individual investors should stay away from the IPO market -- always."