Wall Street More Right On Twitter Inc Than Stock Traders

Wall Street More Right On Twitter Inc Than Stock Traders
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Twitter’s (NYSE:TWTR) potential sale has made the stock market react crazily these days. For the last two weeks or so following the reports of Twitter actively seeking a buyer, shares of the social network surged or declined by at least 5% on at least three occasions, notes Bloomberg.

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Big movements in stock price

Over the past two years, such huge moves in Twitter have happened on only 11% of the trading days (compared to 30% this time). The 20% drop on Thursday after reports that the CEO of Salesforce is not as interested in buying the micro-blogging site is also included in the big moves. Recode reported that potential buyers Disney and Google are not bidding either.

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Twitter’s stock has risen 43% since reaching its lowest point in February right before the buyout speculation started to rise. The reason the stock got so cheap is because the company’s growth began to decelerate. The micro-blogging giant closed the second quarter with an average of 313 million monthly active users, only 3% higher than a year before. Though its revenue showed 20% y-o-y growth in its latest quarter, it was its weakest top-line growth as a public company.

After a long gap, Twitter stock is nearly back to where it was before the takeover drama began. On top of a share price that already baked a good takeover premium, Twitter shares have reacted to almost every development in a sale that may never happen.

Analysts are right on Twitter

Though many may blame analysts for such movements, the fact is that they look more correct about the social network than the stock market crowd, notes Bloomberg.

Only six of 40 analysts surveyed by Bloomberg recommended buying the stock, whereas at the end of 2015, 16 out of 40 analysts did. It is difficult to find an analyst in recent days who is sure that Twitter will be sold at a substantial premium (provided they actually believe the company will be sold at all).

After the company’s financial numbers started to crumble, analysts lowered their price targets on the stock. Such estimates appear to be a true reflection of the company, provided an acquisition never materializes, and no one really knows anything about it right not.

A fair target multiple for the social media company was around nine times estimated 2017 EBITDA, believes Bernstein Research analyst Carlos Kirjner. Twitter’s stock price would have to drop about 33% to $13.19 to get to that multiple. This would be in line with analysts’ 12-month stock price target of $16.50.

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Aman is MBA (Finance) with an experience on both Marketing and Finance side. He has worked as a Risk Analyst for AIR Worldwide, and is currently leading VeRa FinServ, a Financial Research firm. Favorite pastimes include watching science fiction movies, reviewing tech gadgets, playing PC games and cricket. - Email him at amanjain@valuewalk.com
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