Twitter's initial public offering created some 1,600 millionaires within the company. That's about two-thirds of its employees, who this week may be watching their tech-royalty status -- and their net worth -- slip away.
Twitter's stock price ($TWTR) has dropped dramatically as Wall Street expresses increasing doubts about the San Francisco-based outfit's 140-character–based business model. Shares have lost nearly a quarter of their value in little more than a week of trading, including a decline of nearly 4 percent yesterday. The drop comes as equities analysts push back against the investor optimism that sent shares spiking to a record high of $73.31 on December 26.
Three analysts who cover Twitter rated the company a sell in recent weeks, The Wall Street Journal reports. The downgrades mean nearly one-third of Twitter analysts think shareholders should dump their stakes. By comparison, only eight companies in the S&P 500 -- of which Twitter is not a part -- are rated worse by the Wall Street analysts who cover them, according to the Journal.
>An overall worth of more than $40 billion at its peak put Twitter in the company of such established businesses as Target, FedEx, and Capital One
While the market's daily vacillations seldom amount to much in the long term, Twitter's extreme fluctuations reflect strong discord over how to value the company. An overall worth of more than $40 billion at its peak put Twitter in the company of such established businesses as Target, FedEx, and Capital One.* In sharp contrast to the days of the first dotcom bubble, that kind of exuberance struck many on Wall Street as irrational.
At Twitter IPO underwriter Morgan Stanley, for example, widely followed internet stock analyst Scott Devitt pointed investors to Google and Facebook instead of Twitter. "In our view, success is far from guaranteed at this early stage," Devitt wrote in a note downgrading Twitter to the investment bank's equivalent of "sell," according to Bloomberg. Devitt pegged Twitter's target value at $33. The stock closed yesterday at $57.05.
Such doubts also plagued Facebook in the early days following its IPO. Questions about Mark Zuckerberg's mobile strategy kept Facebook shares in the doldrums much longer than early investors and windfall-seeking workers hoped. But as the company's mobile numbers improved, so did its share price.
Twitter has mobile well in hand. Its promoted-tweet advertisements work almost identically on phones, tablets, and PCs. The question isn't whether Twitter can adapt its business strategy to a particular platform. It's whether that strategy will ever really turn Twitter into an ad-selling juggernaut like its more established, more profitable competitors. (Right now, even Amazon's side business in ads appears to generate more revenue than Twitter does.)
In all likelihood, Twitter's value is dropping in part because we're nearing the end of the lock-up period preventing non-executive Twitter employees from selling at least some of their shares. As so many new shares flood the market, their value typically falls.
Still, even the most bearish Wall Street estimates put the value of Twitter shares several bucks above their $26 IPO price tag. Some paper millionaires may wind up mere several-hundred-thousand-aires by the time they're able to sell. But don't cry for them. In San Francisco, that's still enough for a down payment on a half-decent condo.
* - After yesterday's close, Twitter's market cap stood at a little more than $31.6 billion, or about a billion dollars more than the value of General Mills.
