Twitter’s shares swooped sharply lower after the social media darling reported a big slowdown in user growth.
Its first quarterly results as a public company unnerved investors. They focused on the facts that fewer people are signing up and users are refreshing their Twitter accounts less often.
The subsequent sell off wiped out close to a fifth of the company’s value.
The shares went on sale in November 2013 at $26 dollars, they immediately doubled and hit a high of nearly $75 dollars in late December. Just before the quarterly earnings were released they were at $66.
The worry is Twitter may have peaked.
Scott Kessler, Head of Technology Equity Research at S&P Capital IQ, said: “User growth and engagement growth, I think is somewhat called into question at this point. Twitter has pretty much been a momentum story, a momentum stock but it seems like in certain respects the momentum has maybe fallen somewhat when it comes to the fundamentals.”
But not all the technology analysts think it is overvalued and fading; some remain firm backers of the stock, betting growth will reaccelerate and Twitter can become as ubiquitous as Facebook.
They also pointed out it is making more money from better targeted adverts, which are getting more feedback from users, something advertisers like and will pay more for.
Sell or buy?
Deutsche Bank is one of one at least six brokerages that raised target prices or ratings on Twitter’s stock.
Deutsche, in a note entitled “Great Quarter, Aside From The Most Important Metric”, said it was impressed by Twitter’s improving monetisation and expected slowing user growth to reverse during 2014.
The broker, which sees Twitter on its way to 1 billion user, maintained a “buy” rating on the stock and raised its price target to $65 from $50.
UBS, on the other side of the argument, issued a “sell” recommendation on the stock and cut its price target to $42 from $45. It was one of at least eight brokerages to cut their target prices or recommendations on Twitter’s shares.
“A lack of mainstream adoption or a more simplified use case was a worry of ours coming out of the IPO and seems to have come to the fore faster than we had anticipated,” UBS analyst Eric Sheridan said in a note.