Twitter has had a volatile month in December. The stock fell dramatically on the New York Stock Exchange after sell-side analysts downgraded it, only to then quickly surge in value. While some investors continue to see potential opportunities for the company in the future, there is plenty of skepticism surrounding the incredible rise in Twitter’s valuation. This is a stock that investors who emphasize valuation as part of their research process are likely to shy away from.

Twitter’s stock price is up 42% since the company’s IPO in early November, however it is expected to remain volatile as the business continues to define itself. The overall increase is attributed to some new advertising products and advertising professionals’ interest in its ad platform. Twitter advertisers have employed metric tools to measure traffic on ads, and, over the past six months, have experienced an increase in return on investment (ROI) from advertising dollars spent on Twitter.

Twitter cash flows are still negative, and, it’s expected that the social-networking company’s still limited features and competition from other, more developed platforms, such as Google, Microsoft, LinkedIn, and Facebook, could impede significant growth in its base. It currently has only half as many employees as Facebook, Inc. Twitter’s small salesforce has limited ability for sales among competing companies. Facebook remains the world’s biggest social-networking site. Although unprofitable, Twitter has closed on the market in recent days at values greater than Viacom Inc., Time Warner Cable Inc., and Target Corp.

Additional concerns for growth stem from potential bans that Twitter may encounter if it pursues opportunities to provide a communication vehicle in developing nations. Governments ruling in countries emerging from political or economic conflicts may block social-networking accounts to control communication and curb uprisings.

Image source: By Troy Holden