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Twitter Plunges as Lockup Ends, Social-Media Stocks Drop

May 07, 2014

Twitter User Growth Slows as Mobile Chat Competitors Gain Steam

The Twitter's stock will traded (TWTR) at the New York Stock Exchange on Nov. 7, 2013. Photographer: Andrew Burton/Getty Images

Twitter Inc. (TWTR:US) plunged to a record low after lifting restrictions on share sales by insiders and early investors, renewing concerns that Internet stocks are overvalued and sparking a selloff (SOCL:US) in social-media companies.

The stock slumped (TWTR:US) 18 percent to $31.85 at yesterday’s close in New York as about 480 million shares from insiders became eligible for sale on May 5, more than quadrupling the current amount available for trading. They declined even as early investors Chris Sacca and Rizvi Traverse Management LLC pledged not to sell, declaring confidence in the San Francisco-based company.

Twitter’s shares have slipped this year after the company reported slowing user growth, raising concern that it may not be able to add more members. Still, the company trades at a level that makes it more expensive than Facebook Inc. or LinkedIn Corp., based on projected 2014 sales.

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“The lockup is the straw that broke the camel’s back,” said Daniel Ernst, an analyst at Hudson Square Research in New York. “If Twitter’s growth was still good, if the company didn’t have such a high valuation, if its margins were better, we wouldn’t have today’s stock situation.”

Twitter’s decline yesterday was the biggest drop compared with lockup expirations from Facebook, LinkedIn, Groupon Inc., Pandora Media Inc. and Google Inc. since 2004, according to data from Bespoke Investment Group LLC. Among Internet stocks, Yelp Inc. slid 13 percent, the most since November 2012, while Pandora lost 8.9 percent yesterday, the same day that China’s biggest e-commerce company Alibaba Group Holding Ltd. filed for an IPO in the U.S.

Early Investors

Trading volume was higher than it was on Twitter’s market debut. The decline leaves the company with a market value of $19.2 billion. That compares with the $19 billion Facebook agreed to pay for WhatsApp Inc., a messaging application, in February.

The company said last week that its monthly active users in the first quarter reached 255 million, with year-over-year growth decelerating to 25 percent from 30 percent in the previous period. Twitter’s stock has gained 23 percent from its $26 IPO price in November.

In total, early investors who own at least 205 million of the shares pledged to hold on their stakes. Chief Executive Officer Dick Costolo and co-founders Evan Williams and Jack Dorsey said they are hanging onto their stock. Benchmark, a venture capital firm, and Rizvi Traverse Management, whose 14 percent ownership makes it the single biggest investor, won’t sell either, people with knowledge of the matter have said. Some of Sacca’s holdings are included in Rizvi.

Ripple Effect

Social-media companies also declined yesterday. LinkedIn decreased 5.7 percent while Facebook and Angie’s List Inc. fell more than 4 percent. Along with Twitter, those companies make up some of the biggest holdings in the Global X Social Media ETF (SOCL:US), an exchange-traded fund listed on the Nasdaq Stock Market. That security declined 3.8 percent yesterday, the sixth time in two weeks it has fallen more than 1 percent. It’s down 21 percent in 2014 after rising 64 percent last year.

Twitter’s lockup expiration, which followed one in February for shareholders to satisfy tax obligations, was the last indicated in company filings.

“The stock has come back to earth from what were very unrealistic heights,” said Brian Wieser, an analyst at Pivotal Research Group LLC in New York who has a sell rating for the stock. “The stock does not trade on anything resembling fundamental valuation. Investors don’t generally understand the company.”

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

To contact the editors responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net Reed Stevenson, John Lear, Jillian Ward


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Companies Mentioned

  • TWTR
    (Twitter Inc)
    • $37.6 USD
    • -0.01
    • -0.03%
  • SOCL
    (Global X Social Media Index ETF)
    • $18.52 USD
    • 0.19
    • 1.03%
Market data is delayed at least 15 minutes.
 
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