Twitter has been lauded for the way the company handled its IPO, avoiding a Facebook-esque price decline and finding new ways to excite investors about revenue potential. The micro-blogging service has been pumping up its monetization efforts and tightening partnerships with advertisers and marketers, and Twitter’s shrewd decisions left Wall Street enamored, resulting in sky-high stock prices – despite the company not being profitable. And last week, prices jumped by 5 percent for no apparent reason (Christmas spirit?). This was the apex of a price balloon that saw stock prices go up around 63 percent between December 6 and December 26. That’s a hell of a 20-day run.
But all that twitters is not gold (ZING) and Twitter’s stock plummeted today on the New York Stock Exchange after Macquarie Capital bumped the company from “neutral” to “underperform.” This sent a message to investors: stop, drop, and sell. The price fell 13 percent as a result, and it doesn’t look like it will jump back up.
Bloomberg talked to Ben Schachter, a financial analyst at Macquarie, who lowered the rating. Macquarie has only been covering Twitter stock since December 11, but Schachter believes the valuation to be inflated. “We continue to believe that Twitter as a company has a bright future and many opportunities ahead,” he told Bloomberg. “However, as a stock, we believe nothing has changed over the last 15 days to justify the rise in valuation.”
This doesn’t mean Twitter is in trouble. The company’s stock was doing exceptionally well, and it would’ve been an extremely unusual situation if it maintained such a puffed-up price without seeing a substantial change in profitability. Twitter’s targeted ad strategy for mobile could help the company’s financial fortune in a big way, but that hasn’t happened yet, and while hopes can raise prices temporarily, they aren’t very good long-term stock rudders.