Twitter's user growth is slowing and it shows no sign of turning a profit. Some fund managers say that's not going to stop the microblogging service's $12.8 billion valuation from treading higher. Much higher.
The $12.8 billion figure is derived from the fair value that Twitter put on its shares in an initial public offering filing last week. Ironfire Capital and Gamco Investors project the San Francisco-based company could be worth $15 billion to $20 billion once it begins trading.
Those targets are fueled by the firms' expectations that Twitter can increase revenue at a rapid clip, as it expands globally and draws advertising dollars from companies seeking access to its more than 200 million monthly active users. Twitter has more than doubled revenue annually as companies advertise on the service, the filing showed.
"The valuation is fair despite the lack of quantifiable profit," said Jeffrey Sica, who helps oversee more than $1 billion of assets as the president of Sica Wealth Management in Morristown, N.J. "I anticipate the revenue to grow exponentially as retailers and media begin to explore ways to attract new customers through the use of Twitter."
Sica, who said Twitter may fetch a valuation of as high as $40 billion when it starts trading, will consider buying the stock. He won't buy if the offering is "overhyped" and the valuation rises above $30 billion.
Twitter, which hasn't set a price range or said exactly when it expects to debut, declined to comment, according to Jim Prosser, a spokesman.
In the offering prospectus, Twitter pegged the fair value of its common stock at $20.62 a share as of August. There are 620 million shares outstanding, according to people with knowledge of the matter, who asked not to be named because the number was not included in the filing.
The stock may debut in a range of $28 to $30, and rise to $50 by the end of 2014, according to Robert Peck, a New York-based analyst at SunTrust Banks. Peck expects new products to help revenue at Twitter reach about $1.2 billion next year, twice his estimate for 2013 sales, according to a research note Monday.
At the $12.8 billion derived from the fair value price in its filing, Twitter would be valued at 28.6 times revenue of about $448 million over the past 12 months. Facebook trades at close to 20 times sales while LinkedIn fetches about 21 times sales.
"The valuation is pretty full," said David Joy, Boston-based chief market strategist at Ameriprise Financial.
Users who access the service from mobile devices are also critical to that growth. About 75 percent of Twitter's most active users accessed the service from handheld devices in the three months through June, up from 66 percent a year earlier. More than 65 percent of advertising revenue comes from those devices.
Advertisers spent $8.3 billion targeting mobile users globally in 2012, SunTrust's Peck said in Monday's research note, citing data from London-based ZenithOptimedia. That could rise to $33.1 billion by 2015, growth that is seven times faster than spending on desktop ads.