Twitter Finally Gets Caught By the Bad News Bears Brigade
TWEET STREET 2014: How does a company that has not made $1 profit now have stock value of $41 BILLION? The coming crash will be horrific…
— MATT DRUDGE (@DRUDGE) December 26, 2013
Matt Drudge, creator of the Drudge Report, may have articulated it a bit dramatically, but in spirit, he was right. Echoing the sentiment of many retail investors and analysts alike, Druge cited Twitter’s (NYSE:TWTR) negative earnings and enormous valuation as a recipe for disaster — and, as of December 30, the market was cooking it up.
Twitter stock fell 13 percent on Friday, closing the day at $63.75, and opened Monday at $60.27, down about 5 percent. Shares stayed trapped below $61 on Monday afternoon at the time of writing, and the market appears content to let the stock wallow through its first major correction since Twitter went public at the beginning of November.
Twitter stock has been surrounded by red flags since its initial public offering. In its S-1 prospectus — a document the company filed with the U.S. Securities and Exchange Commission detailing its business ahead of the IPO — Twitter reported a net loss of $133.9 million for the nine months ended September 30, up from $70.7 million in the year-ago period. Although revenue is growing rapidly, climbing 106 percent for the nine months ended September 30 to $422.2 million, earnings are expected to remain negative through 2014. Even Goldman Sachs analyst Heath Terry, who gave Twitter stock a Buy rating with a $46 price target, forecast negative earnings of 71 cents per share in 2014.