Twitter Inc (TWTR) Shares Jump Again, But Is It Overvalued?

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Twitter Inc (TWTR) Shares Jump Again, But Is It Overvalued?
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Twitter Inc (NYSE:TWTR) stock is on the rise today after several tough trading days. Shares rose nearly 3% in early trading, possibly after a new experiment was uncovered by Owen Williams, an engineer at Xero, on his Twitter account.

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Twitter experiments with engagement

According to TechCrunch, he noted what looks like one of Twitter’s testing accounts: @AchievementBird. It sends users direct messages about achievements they earn with their tweets. For example, the account will notify a Twitter user when their tweet was used in an article and even show where that article is by providing a link. The goal is to boost engagement, which probably looks pretty good to investors since engagement matters to the company’s bottom line.

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TechCrunch also noted the account @magicheadlines, which was part of a Twitter hack week project but had goals similar to those of the @AchievementBird account. It basically notified users where their tweets are embedded around the web.

Twitter lock-up ends soon

However, Twitter Inc (NYSE:TWTR)’s rapid share increase still has analysts and some investors concerned, and rightfully so. Wired‘s Marcus Wohlsen notes that the lock-up period for many Twitter insiders is about to expire—on Feb. 15, as a matter of fact—flooding the market with more shares. Many investors have probably been selling out of Twitter because the share price of any stock typically falls when non-executive Twitter employees are able to sell their shares because there are more shares available than there were before they sold them.

Twitter Inc (NYSE:TWTR)’s initial public offering made about 1,600 of the company’s employees millionaires in a matter of days. So it’s only natural that they might want to cash in their paper profits. In fact, if they wait, they might end up with just several hundred thousand rather than the millions they have on paper right now.

Twitter’s first results due Feb. 5

One of the biggest issues which has plagued Twitter since its IPO is the fact that it hasn’t reported any quarterly results. However, they will all change on Feb. 5, which is when the company said it would release the results from its first quarter as a public company. At that point, some of the speculations which have been running wild may come back down to earth because investors and analysts will get the first real view of exactly how financially healthy Twitter Inc (NYSE:TWTR) really is.

Most analysts agree that the micro-blogging site will post a loss in its first report. Consensus estimates indicate Wall Street is expecting losses of 2 cents per share on $217 million in revenue. However, that first report will be less about how much money Twitter lost and more about signs that the company is improving its ad offerings and what kind of value investors see in any indications which are given in that report. Guidance will also be a key indicator of what management expects for Twitter in the near future. They will probably be pretty cautious at first because they don’t want to cause investors to have unrealistically high expectations.

What about Twitter’s valuation?

In spite of any potential which may or may not lie within Twitter Inc (NYSE:TWTR)’s business model, many analysts and investors are still worried about the company’s valuation. As of right now, its market capitalization stands at more than $32 billion. According to CNN Money, that makes Twitter’s market cap about the same as or even higher than some well-known blue chip companies like AFLAC Incorporated (NYSE:AFL), Kraft Foods Group Inc (NASDAQ:KRFT) and Deer & Company (NYSE:DE).

As a result, many analysts have downgraded Twitter over the last week or so, suggesting that the market is just moving ahead of the company and pushing its value too high too early.

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Michelle Jones is editor-in-chief for ValueWalk.com and has been with the site since 2012. Previously, she was a television news producer for eight years. She produced the morning news programs for the NBC affiliates in Evansville, Indiana and Huntsville, Alabama and spent a short time at the CBS affiliate in Huntsville. She has experience as a writer and public relations expert for a wide variety of businesses. Email her at Mjones@valuewalk.com.
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2 COMMENTS

  1. This message is for the uneducated investors buying TWTR at EXORBITANT inflated prices, and the
    warnings of these supposed expert analysts (see recent downgrades below – average
    price target = $40), may I borrow your shares so I can sell TWTR short? I promise to pay reasonable interest, so long as you allow me to cover my short Feb 17 AFTER their earnings announcement on Feb 5 and employee stock sale on Feb 15.

    Date Firm Type Rating Price Target

    1/9/2014 Cowen & Co New Coverage SELL 32

    1/8/2014 Cantor
    Fitzgerald Downgrade SELL 32

    1/6/2014 CRT Capital Downgrade Fairly Valued N/A

    1/6/2014 Morgan Stanley Downgrade Underweight 33

    12/27/2013 Macquarie Downgrade Underperform 46

    12/17/2013 Atlantic Equities Downgrade Neutral 50

    12/16/2013 Wells Fargo Downgrade Underperform 37.5

    12/16/2013 SunTrust Robinson Downgrade Neutral 50

    12/2/2013 BofA/Merrill Lynch New Coverage Underperform 36

    11/20/2013 Cantor Fitzgerald Downgrade Hold 32

    Also interesting to note that none of my three teenagers use
    Twitter, but they are always on Instagram and SnapChat. Who is going to be reading all those future TWTR
    mobile ads? Will the advertisers come??

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