It’s understandable for early Twitter Inc (NYSE: TWTR) investors to harbor a certain level of resentment toward Facebook Inc (NASDAQ: FB). The companies had two of the largest and most highly-publicized IPOs in history, and they remain two of the most popular and well-known social media brands to this day.
Unfortunately, when it comes to the business side of the equation, Facebook has put Twitter to shame. Shares of Facebook are now up 269 percent from the company's 2012 IPO price, while Twitter shares are down roughly 45 percent from its 2013 IPO price. Twitter has struggled with maintaining user growth and monetizing its massive audience.
It's All In The Numbers
While Twitter isn’t nearly as efficient as Facebook in terms of generating ad revenue, it would certainly have a lot to gain from simply growing its user base. Back in February, Pacific Crest reported that Facebook’s global average revenue per user is roughly $7.18, while Twitters ARPU is only $2.07.
In addition, Facebook has more than 1.86 billion global monthly active users. Twitter reports just 313 million.
If Twitter were to match Facebook’s 1.86 billion users, it would need to add 1.547 billion users. At $2.07 per user, closing that gap would theoretically generate more than $3.202 billion in additional annual revenue for Twitter. Twitter reported $2.5 billion in revenue in 2016, so an extra $3.2 billion in revenue would bring the company’s hypothetical annual revenue total to $5.7 billion.
Twitter currently trades at a price/sales ratio of 4.1. If that ratio were maintained and Twitter grew its user base to the size of Facebook’s, Twitter’s stock could be valued at around $32/share.
Of course, Twitter growing its user base would likely also result in the stock trading at a premium multiple to where it trades now. Facebook’s price/sales is currently 14.67, according to Yahoo Finance. If Twitter matched Facebook’s total users and the stock traded at Facebook’s price/sales ratio, Twitter could be worth nearly $115/share.
Unfortunately for Twitter investors, this type of growth is easy to imagine and extremely difficult to produce. Until the company figures out a winning recipe like Facebook did, Twitter shares will likely continue to trade under $20.
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