Twitter: The Bubble Burst Quickly

Bill Maurer profile picture
Bill Maurer

It was not a pretty day on Friday for shares of social media darling Twitter (TWTR). Twitter shares fell nearly $10, more than 13%, the largest one-day fall since the company went public in early November. Shares are down almost 15% since their most recent high this past week. The culprit on Friday was an analyst downgrade, something not uncommon to this name lately. So why did Twitter fall this much on just one downgrade? Today, I'll analyze the social media giant.

Friday's downgrade:

Macquarie analyst Ben Schachter downgraded Twitter from Neutral to Underperform on Friday, but maintained his $46 price target. While the analyst sees a bright future for the company, he noted that fundamentals have not changed recently for Twitter. It was just two weeks earlier that Macquarie started Twitter at Neutral, and yet Twitter shares had rallied 40% since. This was a pure valuation call, as the analyst believed the stock's run up was unjustified. Remember, this is a name that had an IPO at $26, so the stock had rallied tremendously when it first started trading. The run from $40 to $75, as seen in the chart below, was surprising to many.

(Source: Yahoo! Finance)

More recent analyst comments:

Twitter was probably due for some profit taking after the huge run up. However, this is a name that's shaken off many downgrades recently, so some people don't see how this one was different. Perhaps enough was enough with the rally. To see all of Twitter's analyst ratings information, click here. I'll discuss some of the recent comments in this section.

On December 16th, Twitter received two downgrades. SunTrust downgraded Twitter from Buy to Neutral, citing valuation. The firm noted that Twitter had rocketed 20% past the firm's $50 price target. Like Macquarie, SunTrust said that Twitter's future was bright, but that investors

This article was written by

Bill Maurer profile picture
I am a market enthusiast and part-time trader. I started writing for Seeking Alpha in 2011, and it has been a tremendous opportunity and learning experience. I have been interested in the markets since elementary school, and hope to pursue a career in the investment management industry. I have been active in the markets for several years, and am primarily focused on long/short equities. I hold a Bachelor of Science Degree from Lehigh University, where I double majored in Finance and Accounting, with a minor in History. My major track focused on Investments and Financial Analysis. While at Lehigh, I was the Head Portfolio Manager of the Investment Management Group, a student group that manages three portfolios, one long/short and two long only. I have had two internships, one a summer internship at a large bank, and another helping to manage the Lehigh University Endowment for nearly a year. Disclaimer: Bill reminds investors to always do their own due diligence on any investment, and to consult their own financial adviser or representative when necessary. Any material provided is intended as general information only, and should not be considered or relied upon as a formal investment recommendation.

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