Wunderlich Maintains Sell on Twitter Amid Aggressive Valuation

In a report published Tuesday, Wunderlich Securities analyst Blake Harper analyzed the key points on Twitter, Inc. (NYSE: TWTR) shares closing up 148% at $60.01 (from Monday's close) from the initial public offering price at $26.00.

Harper stated that Twitter trades at a market cap of $46 billion, including options and RSUs. Wunderlich Securities estimated FY15 revenue was $1.5 billion, growing 45% Y/Y. The analyst commented, "While the company is growing revenues faster than its fastest growing peers and we do recognize the potential for the company to capture larger portions of the mobile and TV advertising market, it appears valuation metrics are irrelevant and that investors are betting aggressively on Twitter being the next great media-technology platform."

Wunderlich Securities continued that 22% of the available float, or 17.8 million shares, were held short as of November 29. With the float of 11% of total fully diluted outstanding shares, the analyst believes this is creating significant levering effect on the market value of the company.

In addition, new products including its "Tailored Audience" product are helping to push shares. Twitter also updated their TV ad suite with TV conversation targeting, "which the company claims can lower customer acquisition costs and increase sales for brands that advertise on both TV and Twitter. While Twitter has touted its success driving real-time social conversation for TV and we believe it should eventually siphon off a small portion of the $240 billion worldwide TV advertising market, the secular shift away from appointment viewing on broadcast/cable TV could challenge its effectiveness."

Harper noted that he does not believe that the current valuation justifies the risk of betting on Twitter becoming a dominant media and technology platform to take a large share of the advertising market over the next five plus years while competing with Facebook and Google. Although the analyst believes this is possible, he remarked that the company has yet to reporty a quarter as public company.

Wunderlich Securities maintains a $34 price target and Sell rating on Twitter.

Shares of Twitter are currently up 7.55% in pre-market trading.