Bloomberg News

Twitter Projected to Drop Over Six Months: Investor Poll

November 22, 2013

Twitter Inc. Founders

Twitter Inc. was founded in 2006 by entrepreneurs including Evan Williams, Biz Stone and Jack Dorsey as a simple site for 140-character updates. Photographer: Scott Eells/Bloomberg

Twitter Inc. (TWTR:US), which surged in its initial public offering, will decline over the next six months, according to a Bloomberg poll of investors.

Shares of the microblogging company, which climbed 73 percent on its first day of trading this month to $44.90, are anticipated to be below that price in six months, 68 percent of respondents said in the Bloomberg Global Poll. The poll this month surveyed 750 investors, analysts and traders who are Bloomberg subscribers.

Twitter, which went public on Nov. 7 at $26 a share, is trading at a price that makes it more expensive than its peers as investors pay a premium for its promises of growth. The San Francisco-based company is losing money as it spends to enhance its products and expand internationally, making it a risky stock to own, said Ted Frost, a survey respondent.

“Since it’s not profitable, it’s too hyped up and subject to the volatile whims of young socialites’ fads,” said Frost, the treasury administrator of Aurora, Colorado, who doesn’t use Twitter. “The run to almost $45 after being priced at $26 seemed like too much.”

Twitter fell 2.5 percent to $41 at the close in New York, and is up 58 percent since its IPO. The closing price valued Twitter at 21 times estimated 2014 sales of $1.1 billion, more expensive than Facebook Inc. (FB:US) Facebook, which has five times as many users as Twitter, trades at 11 times sales.

Jim Prosser, a spokesman for Twitter, didn’t respond to a request for comment.

Technology Froth?

The survey results reflect renewed questions about the valuation of Internet and social-media stocks and whether they are reaching the bubble-era levels of the late 1990s, when numerous dot-com companies went public even if they made little revenue and were unprofitable. Twitter, which initially priced its IPO conservatively, bumped up its offer price amid a surge in investor demand. Facebook traded above its IPO price earlier this year and is up more than 75 percent so far this year.

Silicon Valley startups are making hay from the boom. File-sharing startup Dropbox Inc. is seeking to raise $250 million in new funding at a more than $8 billion valuation, people with knowledge of the company’s plans said this week. Online scrapbooking site Pinterest Inc. and others have also recently landed multibillion dollar valuations.

According to the Bloomberg poll, 82 percent of respondents thought Internet and social-networking stocks were either in a bubble or nearing one.

Twitter’s Evolution

Twitter was founded in 2006 by entrepreneurs including Evan Williams, Biz Stone and Jack Dorsey as a simple site for 140-character updates. It has since evolved into a global megaphone for politicians, celebrities and others, who use the service to share their news, photos and musings.

“I view Twitter as nothing more than a parlor game,” said Jake Kaercher, a poll respondent and managing director at Stifel Nicolaus & Co. in New York.

Only 12 percent of poll respondents predicted Twitter would trade above $44.90 six months from now, while 8 percent projected it near that number and 12 percent said they didn’t know.

The six-month anniversary of Twitter as a public company will coincide with the expiration of a standard lockup waiting period for Twitter executives and directors, enabling them to sell their stock. Some non-executive employees may be eligible to sell almost 10 million shares as soon as Feb. 15, the company’s prospectus shows. None of Twitter’s insiders sold their shares in the IPO.

Sell Rating

Some analysts have rated Twitter a sell, citing concerns that user growth may be limited compared with rival social networks. Wunderlich Securities Inc. this week initiated coverage of Twitter as a sell.

“The company must better simplify and customize its product to reach new users in the mass market to justify its current growth projections,” wrote Blake Harper, an analyst at Wunderlich.

Structured note investors earlier this month were also bearish on Twitter’s prospects, betting that shares will fall below $28 by June. Nine of the 10 most-traded securities listed on European exchanges and tied to Twitter shares at the time were put warrants, whose buyers profit if the shares drop below a pre-defined level, according to data compiled by Bloomberg.

For the third quarter, Twitter’s revenue was $168.6 million, up from $82.3 million a year ago, according to a company filing (TWTR:US). Net loss expanded to $64.6 million from $21.6 million. The company, which has more than 230 million monthly users, is deriving 70 percent of advertising revenue from mobile devices, compared with 65 percent in the second quarter.

The poll was conducted Nov. 19 by Selzer & Co. of Des Moines, Iowa. It has a margin of error of plus or minus 3.6 percentage points.

To contact the reporter on this story: Sarah Frier in New York at sfrier1@bloomberg.net


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Companies Mentioned

  • TWTR
    (Twitter Inc)
    • $45.01 USD
    • 0.59
    • 1.31%
  • FB
    (Facebook Inc)
    • $58.94 USD
    • -0.78
    • -1.32%
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