Twitter Inc. plunged to its lowest price in six weeks after short-seller Citron Research said it was betting against the company because of potential privacy regulations.
Citron said it’s taking a short position in Twitter stock, meaning it’s borrowing shares with the bet that the price will fall and it will be able to buy them at a lower price to replace those it borrowed. The firm pointed toward the criticism of rival social network Facebook Inc. after reports that a political consulting firm associated with Donald Trump’s 2016 U.S. presidential campaign improperly gained access to the personal data of 50 million Facebook users.
“Of all social media, they are most vulnerable to privacy regulation,” Citron wrote of Twitter. The firm said an increasing portion of Twitter’s revenue is coming from its data licensing business, which “makes this money from selling user data even from private messages.”
Twitter shares fell 12 per cent to $28.07 at the close in New York, its lowest price since Feb. 7 and its biggest single-day decline in eight months.
A Twitter spokeswoman said the media platform “is public by its nature. Public Tweets are viewable and searchable by anyone. This is the power of Twitter. To be clear, our data licensing business does not sell DMs,” referring to direct messages. “Any reports to the contrary are wrong.”
Social media companies have come under intense scrutiny over reports that Facebook failed to protect the privacy of those on the social network, leading to the use of data by political consulting firm Cambridge Analytica. Lawmakers in both houses of Congress have called on Facebook Chief Executive Officer Mark Zuckerberg as well as Google CEO Sundar Pichai and Twitter CEO Jack Dorsey to testify before them.
Twitter sells different levels of data access to developers. The company has tried to expand its data licensing business as it struggles to increase advertising revenue. Enterprise customers are given the broadest data access, which includes the last 30 days of Tweets or access to Tweets from as early as 2006. To get that access, those customers have to provide information on how they plan to use the data and who the end users of the data will be.
It’s an “apple-and-oranges comparison” to look at advertising and data content models at Twitter and Facebook, said Daniel Ives, an analyst at GBH Insights. The concerns around data privacy and advertising content are specific to Facebook, he said.
“Twitter’s advertising model from a targeting perspective, uses more publicly exposed data compared to Facebook,” Ives said. “The fears are that regulatory cross hairs are going to capture Twitter in the headwinds.”
An investor successfully shorts a stock by borrowing a number of shares from a broker, paying the broker a stock-loan fee and interest for the loan, and then selling the shares at the current share price. If the stock price declines, the investor then buys the same amount of stock at the lower price, returns the shares to the broker and pockets the difference.
Twitter’s short interest was less than 1 per cent of the shares available for trading as of Monday, down from 9 per cent a year ago, according to data compiled by IHS Markit Ltd.