- Twitter, in the midst of a 5 month downtrend, was clipped again after poor earnings guidance.
- A six month share lockup expires today, releasing an ungodly 480 million shares for free trading.
- I believe Twitter could head lower in 2014.
It's certainly going to be something to watch how Twitter (NYSE:TWTR) trades this week. Aside from its recent miss on earnings - where the company managed to salvage some of its stock price on Friday after its decline - Twitter seems like it is no longer the market's darling after once sitting as high as $70 just five months ago.
The fate of the stock in the short term is now up to the institutional holders and employees of the company, as a six month lock up of the company's stock is set to expire today. The securities contained therein, according to Seeking Alpha, represent 82% of the company's outstanding shares.
Seeking Alpha reported:
- A six-month lock-up on 480M Twitter shares is due to expire today, releasing for trading over four times the amount of stock that is already available. The securities also represent 82% of the company's outstanding shares.
- The increased supply of stock could add to the 39% drop that the stock price has suffered this year, although major investors who hold at least 205M shares combined plan to hold onto their interests.
- These include private-equity firm Benchmark, co-founders Evan Williams and Jack Dorsey, CEO Dick Costolo, and Rizvi Traverse Management, whose 14% makes it Twitter's largest shareholder.
- Despite the sharp fall in Twitter's shares in 2014, Barron's reckons the stock is still overpriced, as the company trades at a "big premium" to other Internet plays, its user growth is slowing, and it "appears to be a long way from profitability."
That's a significant amount of shares, and definitely enough to do damage on a stock that seems to already have post-earnings wobbly knees. It's been reported that 205 million shares plan on holding, but that leaves a massive 275 million unaccounted for shares.
Of course, who can forget what happened to Yelp (NYSE:YELP) when the major question of a lockup expiration loomed?
If you recall, Yelp surged on a short squeeze - up 22% at one point during that day - as company insiders and employees held their stock through their lockup period. They were rewarded, as the stock ran significantly afterwards.
The last time Twitter had a lockup expiration, the stock was trading around $56 a share. You have to wonder if the decreased price is going to entice others to what to take their free money and run.
Technically, Twitter continues to seem mired in a downtrend here that begun in late December. earnings have failed to fuel a turnaround in the company's stock since then. I contend we could easily see Twitter under $30 before the end of the year this year, pending some type of "hail mary" style news. The guidance, in a case of aggressive valuation like Twitter, is just too important.
Additionally, the company is still a long way from turning a profit.
Regardless of whether or not Twitter employees hit the exits here, Twitter is still going to be a stock to watch for significant volatility, as the market works out how it feels about this and other social media/momentum stocks.
I'm expecting downward pressure on the stock to increase this week, and would recommend hedging a long position - or perhaps considering going short.
Best of luck to all investors.
Additional disclosure: I have a long strangle on Twitter.