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Twitter Could Be The Next Google, Or The Next Amazon

|Includes: Twitter, Inc. (TWTR)

When Google (NASDAQ:GOOG) started it was nothing more than a search engine, a one trick pony. No matter, internet search has revolutionized our lives. It has allowed Google to grow and diversify into a multifaceted technology behemoth, now trading for over $1,000 per share. Unlike Facebook (NASDAQ:FB), a very mature profitable company, Twitter (NYSE:TWTR) came to the market very early. They don't have earnings and their growth estimates have to be stretched pretty far to justify their current overpriced valuation. In fact, the bears who have shorted the stock, believe Twitter is a fad that will fade and will be subject to competition if and when a profitability path is finally forged. They feel TWTR doesn't currently face stiff competition because who wants to dominate in a space that is so devoid of earnings.

But what the bears, and many analysts are missing, is that they are looking only at the present growth models as Twitter is now formulated. They are concentrating on the present and failing to envision the future. As I see it, Twitter is not a fad and their dominant position is so large, it is only a matter of time before they use their massive cash hoard to purchase companies like Facebook has done, to enhance their opportunities. They will also eventually diversify in areas that we cannot presently imagine. Owning the stock is a very large call option on the future. Highly speculative for sure, but so broadly held and sentiment is so high, it should develop into an industry darling. Just like Amazon holders have been patiently bidding up Amazon's stock value for years on a company that has yet to make any meaningful profits, Twitter should get equal treatment. Lack of profits should be no impediment to the company or the stock price as long as the company continues to grow. What if I am correct and Twitter gets a pass in the short term like Amazon has for years, but then later it finds its footing and becomes the next Google?! An Amazon turned Google could develop into a stock that trades at valuations we have never ever seen. Under such a scenario the stock could reach $1,000 or higher. The sky is the limit.

One Must Add A 50% Speculative Premium To All Stock Price Valuations

At this point you probably think I am crazy. But the future of Twitter is a complete unknown. Due to the positive sentiment surrounding the stock, and the successful IPO launch, one must raise your stock price projections to account for the over exuberance of the buying public. I say the premium that needs to be added is most probably about 50%. How did I arrive at this figure? Well, I read much of the commentary that has been recently published regarding TWTR, and it is apparent that there are a great number of traders anxious to buy TWTR when it trades down towards the IPO offering price of $26. An early recommendation said to buy at $18, but due to the current hype, most are now advising to wait until the stock trades at $25 to $28 to buy. Well, analysts may tell you to wait for $28 or lower to buy, but you can be sure they will be buying at $30 or higher. So many will be anxious to get in, I doubt you will ever see $28 or lower anytime in the foreseeable future, probably never. Only catastrophically bad news, a rare black swan event, would cause TWTR to trade in the $20s as I see it now. I see a large number of lighter-than-air helium balloons attached to TWTR that will make it difficult to keep this stock down. The most minor positive news could cause this stock to spike up violently. At no time would I recommend naked shorting of this stock.

But I still have not explained the 50% valuation premium. Well, when one takes the $26 offering price, and adds 50% or $13, one gets $39. The trading low so far is $39.40, which tells me, the market has placed a 50% or greater premium on the TWTR valuation. And I see no reason for that to change. Even if we eventually sell off to say $27, that is only because the market has determined that the true (highly stretched) valuation of TWTR is $18, and the 50% premium will still be factored in, causing the stock to trade at $27.

The 50% Valuation Premium Could Expand Significantly

The current 50% premium that the stock is trading at will adjust up or down over time. If there is any good news at all in TWTR, I look for the stock price premium to expand exponentially. Think a minute of Amazon (NASDAQ:AMZN). If Amazon was not Amazon, with their paltry earnings, they would probably trade for 1/5th or 1/10th of their current valuation. Thus, Amazon is not getting a 50% premium kicker, but more like 500% to 1000% or more. Before TWTR grows into a company like GOOG, it will first want to become AMZN and grow into a company that is overvalued by 500% or !000%. Using $26 as the base, that would mean TWTR would trade for $130 to $260. Don't laugh. If thinking about shorting TWTR, one needs to think about these types of potential valuations.

Expected Short-Term Trading Range

Having spewed all of that bullish nonsense, you may be surprised to know that in the short-term, I see the trading range of TWTR being quite subdued. I believe that traders will aggressively take profits and/or short the stock above $46 to $48, and they will be aggressively buying the stock and/or covering their shorts at $38 to $40. I see a stalemate developing where the stock swings back and forth in a $8 to $10 range. With an average daily trading range of about $2, it should be an excellent day trading stock if one buys low and sell high. Again, I do not favor shorting the stock at this time, only playing the long side, for the reasons that I have enumerated in this instablog.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in TWTR over the next 72 hours.