After IPO pop, Twitter stock slides
NEW YORK — Twitter’s stock slid more than 7 percent on its second trading day Friday, after the popular short-messaging service saw a huge first-day pop in what turned out to be a smooth public debut.
Such volatile trading is common for freshly public stocks as investors make decisions with limited insight into how well companies will do in the long run. Although there are a few outliers, most analysts believe the appropriate price range for Twitter’s stock is in the $30s and low $40s. The mean target price analysts have set for the stock, according to FactSet, is $40, with targets ranging from $29 to $54.
The San Francisco-based company spent the past two weeks pitching investors on the stock’s potential for growth, as it seeks ways to generating more advertising to its 230 million users. Thursday’s closing price valued Twitter at 22 times estimated 2014 sales, more expensive than Facebook Inc., which traded at 11.2 times sales. It was the largest technology IPO since Facebook debuted last year.
“The market still has to settle in,” said Brian Wieser, an analyst at Pivotal Research Group LLC in New York who has a sell rating on Twitter. “It was obviously a very successful IPO, but over time people are going to be looking at valuations, and those assessments will increasingly weigh on minds.”
Wedbush analyst Michael Pachter arrived at his $37 price target by assuming Twitter will double its monthly users to 460 million over the next five years while increasing the number of times users look at Twitter every day. Pachter estimates Twitter will deliver $3.5 billion in EBITDA — earnings
before interest, taxes, depreciation, and amortization — by 2018.
“Twitter is likely in the early innings of its growth,” Pachter wrote in a note to investors. “We believe that the majority of the world’s 2.4 billion Internet users have great potential to find something or someone on Twitter that they are interested in.”
Twitter’s stock fell $3.25, or 7 percent, to $41.65 in trading Friday despite an uptick in the broader market.
The shares are still up 60 percent from the $26 IPO price Twitter and the IPO’s underwriting bankers set Wednesday night. Twitter made $1.8 billion in the offering. On Thursday, the company’s stock jumped 73 percent in its first day of trading, creating hordes of new millionaires — and even a few billionaires.
The microblogging service will have to maintain the level of its stock to erase the aftertaste of the Facebook, Zynga Inc. and Groupon Inc. IPOs, each of which lost half their value within six months of their debuts, sending a chill over consumer-technology IPOs and some Silicon Valley startup valuations.
Twitter has yet to prove its business model. While revenue more than doubled annually, to $534.4 million in the 12 months through Sept. 30, user growth is slowing and becoming more costly, filings show. Most of the opportunity may be outside the U.S., where Twitter had 77 percent of its users but only 26 percent of its revenue in the third quarter. Information for this article was contributed by Barbara Ortutay of The Associated Press and by Sarah Frier of Bloomberg News.