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A Different Take On TWTR's Valuation!

|Includes: Twitter, Inc. (TWTR)

From 424B4 dated 11/7/13:

TWTR generated $112,247 of revenue in 4Q:12 ($316,933 (full year 2012) - 204,686 (9-months ended 2012). Hence, TWTR generated 35.42% of its revenue in 4Q:12. Applying this forward to 2013, we get 2013 revenue estimate of ~$654M. (9-months ended 2013 revenue divided by the reverse of the 35.42%: $422,215/(1-0.3542) = $654M)

$654M implies a growth of ~107% in 2013. Being generous, let's assume TWTR doubles its revenue stream again in 2014 to ~$1.3B. And, let's assume again a generous 85% revenue growth in 2015 (for those asking why 85%; don't forget of law of large numbers). That will give us 2015 revenue estimate of ~$2.42B.

Now is the tricky part. At the high end of estimates, FB will be growing its revenue base by ~40% in 2015. TWTR's 85% revenue growth estimate in 2015 is 2.125X (85/40) that of FB's. FB is currently trading at 8.5X its 2015 revenue estimate. Applying 2.125X to 8.5X, we get a "very generous and aggressive" 2015 P/S multiple of ~18X for TWTR.

18X multiple applied on 2015 revenue estimate of ~$2.42B yields a market cap of ~$43.56B. Diluted O/S shares is ~704M shares (and will be much higher in 2014 and 2015!) That implies current share price of ~$62. Of course, we can always argue "10% premium" on top of our very aggressive growth assumptions due to "scarcity value" for TWTR shares (float is only ~80M shares). That would imply a current share price of $~68.

So, who is willing to pay $68 for TWTR or more? If more, what are your assumptions?