What will poor Donald Trump do at 3am if there is no Twitter? This horrific though comes to mind after reading a Fortune article about how Twitter’s share price is plummeting.
The word “roller-coaster” doesn’t even begin to describe the ride that Twitter shareholders have been on so far this week-and it’s not over yet by a long shot.
First, the company’s share price price TWTR -19.38% zoomed higher early in the week on reports that the company could be a takeover target for several large tech and media companies, including Google, Disney, and Salesforce. But late Wednesday, the stock collapsed after reports that poured cold water on that initial enthusiasm.
After its IPO in 2013 Twitter’s market cap was $48 billion. After rumors of a takeover bid this week Twitter’s market cap made it back up to $17 billion, barely a third more that it was after the IPO. Is it too late to sell your Twitter stock or is the stock likely to fall even more?
Comparisons to Yahoo
A lot of the recent strength of Twitter stock has come from rumors of takeover bids. This is all too reminiscent of Yahoo during its decline. What is of value to other companies is Twitter’s huge amount of data on social behavior. However, Google which seemed to be the best fit for a takeover already has a partnership with Twitter whereby it can take advantage of Twitter’s data. Market Watch writes about how deep Twitter’s slide could get if no one steps in to bail it out.
Chris Bailey, founder of Financial Orbit, said Twitter shares could drop more than 10% Thursday, which was already happening, as a market that had gotten ahead of itself, tries to adjust.
“Fundamentally the numbers are not supportive of a share price here, so there is a balance game between the value of info/the franchise and the actual profit/cash flow numbers. A mid-teens share price seems to offer some support between these two aspects,” he said.
“My gut: Twitter gets taken out in the next couple of years by a top-tier tech name recognizing the value of real-time info/eyeballs. Price? $20s. My trading instinct is to buy every couple of [dollar moves] below $20, i.e. $19s, $17s, $15s…” Bailey said in emailed comments.
Other opinions are similar. It is probably too late to sell right now for a profit but most analysts are saying that anything too far into the $20 range is unsustainable given that no white knight is likely to step in with a buyout offer. Right now no one is making a Yahoo comparison of continued demise. However, no one was doing that with Yahoo over the years. This is the reason that long term investors like Warren Buffett like to avoid tech stocks because they don’t know how to value them 5 and 1o years out. If someone picks up Twitter it will be a nice payday for current stock holders. But it is always possible that their business model will cease to be as profitable as it is, like Kodak, and then you will have wanted to gotten out now instead of later. Poor Mr. Trump if Twitter goes away and there is no way to tweet at 3 am!