Mad Money

Cramer: Market absolutely smitten with Twitter

Cramer's quest for unconditionally loved stocks
VIDEO6:0706:07
Cramer's quest for unconditionally loved stocks

(Click for video linked to a searchable transcript of this Mad Money segment)

People always criticize the multiple that Twitter commands.

And yet Twitter made a new intra-day high this week without any real catalyst to speak of.

Skeptics find the price action nothing short of preposterous. They're all but certain Twitter bulls are running right into a brick wall.

And their skepticism seems perfectly reasonable.

After about a month as a publicly traded company, Twitter is now trading at roughly double its IPO price and has a market cap of about $26 billion. Yet revenue for the third quarter was merely $168.6 million.

According to published reports, to support even a valuation of $8 billion, Twitter will need to grow its revenues at a compounded growth rate of nearly 30% per year for the next ten years.

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By any reasonable standard, the valuation should not be sustainable. It's just a matter of time before the house of cards comes tumbling down, skeptics say.

Jim Cramer isn't so sure.

"People love Twitter," Cramer said. That is, they love to Tweet and re-Tweet and read other people's Tweets. And people don't behave rationally when they're in love.

Of course you could argue that love has no place in the stock market. But Cramer doesn't think it matters.

People also love Amazon.

It doesn't seem to matter that after 20 years in businessAmazon has yet to turn a profit. On Wall Street bullish affection remains steadfast; Amazon trades at a multiple of 1,300.

The same can be said of Netflix and Tesla. Bulls love these companies too: they love their products and therefore they also love their stocks. Again, both command multiples that don't make sense by any conventional metric, yet shares go up, up, and up.

Netflix has gained almost 300% year to date while Tesla has gained even more than that. Like the song says, that's the power of love.

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Turning attention again to Twitter, Cramer suspects this is only the beginning of a long and loving relationship between the market and the social media stock. Therefore he sees no reason to think Twitter is going to fall anytime soon.

"I have a confession to make," said Cramer. "I'd like to think that my family loves me the way the market loves Twitter."

We're sure they do.

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