UPDATE: Pivotal Research Group Initiates Coverage on Twitter Ahead of IPO

In a report published Monday, Pivotal Research Group analyst Brian Weiser initiated a Buy rating on Twitter (NYSE: TWTR) and a $29 PT.

Weiser noted that Twitter can be compared with other venture-funded pre-IPO companies, but larger and better funded. Pivotal's forecasts that Twitter will be worth one fifth of Facebook (NYSE: FB) and should grow faster than Zuckerberg's company. The analyst also commented that "advertisers will continue to value Twitter for its unique attributes and should conceivably allocate budgets from sources intended towards digital goals, likely in proportion to Twitter's share of consumer time with digital media (in our experience, advertisers do not generally allocate budgets to match consumer time across media, but we believe that they are more likely to do so within similar media)."

During Twitter's IPO roadshow presentation, the company stated expected adjusted EBITDA margins within 35-40%, 5-10% greater than the analyst's original expectations. Weiser calculated that 680M shares will be outstanding for YE2014 and 777M in YE2018. With the proposed IPO pricing between $17-20, Pivotal's PT is 46% above the high end of this range at $29. The analyst's future share insurances forecast amounts to more than $200M in annual value with the $29 PT, or $100,000 per employee annually.

Pivotal included key risks around Twitter's valuation which include acquiring more cash and further acquisitions to remain competitive and to support their business plan. In addition, investor sentiment will likely sway shares and make the stock very risky. Weiser further commented that "The product is generally unproven as a widely used advertiser proposition; there may be limits to growth which are below those we have forecast." Government regulations regarding privacy will likely heighten consumer concerns as well.