The initial public offering (IPO) of Twitter Inc (NYSE:TWTR) created paper millionaires —approximately 1,600 of its employees as the stock price of the popular micro blogging company surged to as high as $74.83 from its offering of $26 per share.
However, many of the paper millionaires of Twitter Inc (NYSE:TWTR) might be considering the idea of selling out their stockholdings early given the bearish position of some Wall Street analysts covering the stock.
Gates Capital's ECF Value II fund was up 9.4% for the first quarter, compared to the HFRI Event-Driven Index's 8.2% gain, the Russell 2000's Value Total Return Index's 21.2% gain, and the S&P 500's 6.2% return. Q1 2021 hedge fund letters, conferences and more Gates Capital Management is an event-driven value . . . SORRY! Read More
Analyst downgrades of Twitter
Over the past week, the stock price of the micro blogging company dropped around 17% including a 4% decline early this week after Morgan Stanley analyst Scott Devitt lowered his recommendation for the shares of Twitter Inc (NYSE:TWTR) to underweight, which is equivalent to a Sell rating.
Devitt opined that Twitter’s success is far from guaranteed although he believed that it is a compelling platform for social networking. According to him, the company is at risk of remaining a “niche product” and it is difficult for it to expand to a broader, money generating audience.
Aside from Morgan Stanley, other brokerage firms issued bearish positions on Twitter Inc (NYSE:TWTR). Cantor Fitzgerald issued a Sell rating while Cowen & Co. initiated an underperform rating for the stock. A significant number of analysts covering the stock believe shareholders should sell their stockholdings in the company.
Neil Doshi, analyst at CRT Capital opined that investors want to see evidence that the new products of Twitter Inc (NYSE:TWTR) such as the Tailored Audiences and MoPub Native Ads are effective and attracting marketers. He also downgraded his rating for the stock.
The stock price of the company is falling for the fifth consecutive day as investors are increasingly uncertain regarding its ability to deliver sufficient sales growth to justify its high valuation, which peaked at $40 billion – almost in the same level as established companies such as FedEx Corporation (NYSE:FDX) and Target Corporation (NYSE:TGT).Twitter Inc (NYSE:TWTR) is currently trading around $57 per share, and its market capitalization is approximately $31 billion.
First quarterly financial result as a public company
Twitter Inc (NYSE:TWTR) is scheduled to report its first quarterly financial results as a public company on February 5. Data from FactSet showed that analysts expect the company to post $0.02 loss per share in $217 revenue for the fourth quarter.
Analysts and investors will carefully evaluate the financial results of the company to find signs whether its products and services are capable of increasing its advertising revenue. If not, its paper millionaires might be spooked and decide to sell off their shares.