Twitter took some hits this week through a combination of factors exerting downward pressure on the stock. First off, last week’s earnings report didn’t have the user engagement numbers that many were hoping for. Second, the employee lockup period ended on Tuesday which freed employees to cash out and sell their stock.
The stock opened the week at $38.75 and dropped as low as $29.58 on Tuesday before resurging. Apparently $30 is the number where investors feel Twitter is still a deal and there has been good momentum on Thursday so far. This sentiment was echoed by Jim Cramer of the Street this morning.
As a stock, Twitter faces a problem common to the other public social networks such as Facebook, LinkedIn and Sina Weibo. The companies must all prove that they have a sustainable business model that will take advantage of their growing, engaged user base before those users move on to another platform.
One of the biggest reasons for today’s surge is a report from Morgan Stanley. According to Marketwatch:
Morgan Stanley analyst Jordan Monahan told clients in a note that while “concerns regarding user growth and mainstream adoption remain, we see Twitter as likely to meet investor financial expectations over the next few quarters.”
Twitter needs to prove to investors that it can make money, not just bring in users (the latter of which is also a problem), if it wants to become a less volatile stock. The company has been focusing on revenue-generation outside of the traditional advertising, by buying Gnip and expanding its presence as a big data provider, for instance.
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