Twitter shares soar but is it overvalued? Analysts say yes

Twitter shares rose by 73 percent in its stock market debut on Thursday, closing at $44.90 and making the company worth $31 billion.

Twitter originally priced its IPO at $26 a share. However, the company is now worth $13 billion more than that.

The giant jump in value means that a lot of investors have faith in Twitter being able to monetize their site just as well as Facebook, whose revenue jumped by 60% to $2.02 billion in Q3 2013.

So, can Twitter become another revenue making social media giant?

That is tricky to answer considering that Twitter has yet to make any profit in its 7 years of existence. 

So, is Twitter overvalued?

Perhaps. When trading closed on Thursday “TWTR” was valued to be worth nearly 48 times its projected 2013 revenue of $650 million, which some are deeming as far too expensive.

To put things in perspective:

The social networking site Facebook currently trades at about 16 times its projected 2013 revenue and Google trades at about 7 times its net revenue.

Brian Wieser, an analyst at Pivotal Research, told Business Insider that he has already downgraded his rating on the company from “buy” to “sell”.

Weiser said: “Twitter is simply too expensive.”

He added that the current price seems “overly optimistic”:

“We do note that one way to justify a $45 price in our model would involve presuming that Twitter could generate more than $6bn in annual revenue by 2018. However, we think that would seem overly optimistic to us given our best assessment of the industry and the business at this point in time.”

Roger Entner of Recon Analytics, said that “ultimately what you want is a nice pop” and “everyone walks away with smiles from ear to ear.”

He concluded that Twitter “now just has to deliver on all this.”