With no earnings and a stock price that nearly tripled in two months, it is little wonder that Twitter Inc. is highly susceptible to expert opinion: The shares were down about 5 per cent on Monday afternoon, and were down as much as 8 per cent earlier, after yet another analyst expressed caution about the stock.
Morgan Stanley cut its recommendation on Twitter to "underweight" with a price target of just $33. The shares debuted at $26 (U.S.) in November, then surged to a high of nearly $75 in December, raising concerns about valuation. Since then, they have been bouncing between $60 and $70 as analysts have weighed in.
According to Bloomberg News, just six of the 27 analysts following Twitter – a social media company where users write in 140-character bursts – have a "buy" recommendation on the stock. Twelve have "hold" recommendations while nine have some version of a "sell" recommendation. The average price target is just $45 – or more than 30 per cent below the current price of $65.74.
The initial public offering in November had come as a relief to investors following the IPO debacle of Facebook Inc. in 2012. Facebook shares surged on their debut but soon slumped well below their starting price amid concerns about overvaluation, botched early trading and an unclear strategy for moving into mobile devices.
However, Facebook is now attracting favourable comparisons among some analysts. The Morgan Stanley downgrade, for example, rests on the view that competition for online advertising dollars is heating up – and Facebook and Google Inc. offer dominant platforms with better risk-for-reward opportunities.
"There is still a risk that Twitter remains a niche product," said analyst Scott Devitt, according to Bloomberg News. "Despite the ease at which users can sign up for Twitter, we think it is inherently more complicated to understand how to get the most out of Twitter, compared to Facebook's service, which is easier to use."
Facebook shares were up 4.6 per cent in afternoon trading, near a record high.