Was Twitter Inc (NASDAQ:TWTR) pulling the wool over investors eyes all along? Has the market just realized that the firm’s chances of competing with Google Inc (NASDAQ:GOOG) (NASDAQ:GOOGL) and Facebook Inc (NASDAQ:FB) is tiny given the obstacles? What is going on with Twitter stock? The company’s shares have lost more than a quarter of its value in the last five days, including an unbelievable 17% drop on yesterday. Twitter went public at a price of $26 per share, and this week might see it fall below that level for the first time.
The mainstream explanation given for the drop in value was the expiration of the lock-up on shares held by company insiders on Tuesday. As Jonathan Weil over at Bloomberg wrote this morning, that explanation doesn’t make any sense. Unless an absurd amount of shares were dumped on Tuesday, which may be supported by high volume, the lock-up expiration shouldn’t have precipitated that kind of reaction. So why did Twitter Inc (NASDAQ:TWTR) lose so much value this week?
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Twitter may just be too highly priced
Twitter Inc (NASDAQ:TWTR) is still falling in value on Wednesday morning. The company’s stock is down close to 6% since the beginning of the day at time of writing. Investors in the micro-blogging company are panicking, and their nervousness is clearly not being eased by the company’s new money-making platforms. The reason for the drop in the company’s value may be a result of simple stock market dynamics, rather than anything the company did specifically.
Twitter is valued at more than $17 billion, even after Tuesday’s drubbing. The company is by no means in dire straits, but it’s facing into a competitive market and there’s little to support the claims of management about the company’s future. Twitter Inc (NASDAQ:TWTR) may be able to earn billions by building a second screen empire, but right now investors seem to think that competitors are a better bet.
Lock up expiry may have been the straw that broke Twitter’s back
Given the extreme valuation that Twitter Inc (NASDAQ:TWTR) debuted at, and subsequently rose to, and the pressures that have molded momentum stocks in 2014, there is little surprise in the company’s fall from previous heights. It will be a long time before Twitter is able to show the kind of profit that supports a $17 billion stock price, and a slowdown in user growth is making the company’s future even less solid in the eyes of investors.
The expiration of the company’s insider share lock-up on Tuesday may have led to a small sell off in the company’s shares, and that sell off may have led to panic about the future of the company. Twitter Inc (NASDAQ:TWTR) is an unprofitable web company, and David Einhorn is walking around talking about another tech bubble.
That hedge fund manager is apparently shorting a group of overvalued tech companies, and his theory about a coming collapse is being listened to by many watching the momentum of the market over the last two years. Twitter Inc (NASDAQ:TWTR) was overvalued by any obvious metric, so there’s no reason to attribute its crash to any single event. The company’s value may drop below IPO price before the week is out, and the only reason worth giving is that the price was too high to begin with.