Twitter Inc’s shares fell almost 25 percent on Thursday, wiping out about $9.8 billion in market value, after the company reported a sharp slowdown in user growth.
The stock, which debuted at $26 in November, hit a low of $50 in early trading. The shares hit a peak of $74.73 in late December as investors bet that the social media platform could become as ubiquitous as Facebook.
Analysts, unlike investors, were divided on the company’s outlook a day after it reported fourth-quarter results.
Twitter, according to broker assessments, is either the overvalued owner of a niche product whose potential is fading or an undervalued phenomenon that is set to give Facebook a run for its money in mobile.
“We remain firmly in the latter camp…” said Deutsche Bank, one of one at least six brokerages that raised target prices or ratings on Twitter’s stock.
Deutsche, in a note entitled “Great Quarter, Aside From The Most Important Metric”, said it was impressed by Twitter’s improving monetization and expected slowing user growth to reverse during 2014.
The broker, which sees Twitter on its way to 1 billion user, maintained a “buy” rating on the stock and raised its price target to $65 from $50.
Facebook has about 1.2 billion users.
UBS, on the other side of the argument, issued a “sell” recommendation on the stock and cut its price target to $42 from $45. It was one of at least eight brokerages to cut their target prices or recommendations on Twitter’s shares.
“A lack of mainstream adoption or a more simplified use case was a worry of ours coming out of the IPO and seems to have come to the fore faster than we had anticipated,” UBS analyst Eric Sheridan said in a note.
Twitter reported better-than-expected fourth-quarter revenue of $243 million in its first results since the IPO.
Investors, however, zeroed in on the anemic user growth, as well as a sharp decline in a measure of user engagement.
Twitter averaged 241 million monthly users in the December quarter, up just 3.8 percent from the previous three months. That was the lowest rate of quarter-on-quarter growth since the company began disclosing user figures.
But the company also said it made $1.49 per 1,000 timeline views, a 76 percent jump from the same quarter of 2012.
“We believe the accelerating user growth and engagement, supplemented by improvements in monetization, will drive continued financial outperformance in the year ahead,” Goldman Sachs analysts said in a note.
Goldman raised its target price to $69 from $65 and maintained its “buy” rating on the stock.
Twitter CEO Dick Costolo expressed confidence that Twitter’s user growth would improve in 2014 once users get used to a change in layout to help new users and take to a new onboarding process for newcomers to Twitter’s mobile app.
“Management offered lots of confidence in reaccelerating those (active user) figures, but that will likely become a ‘prove it’ story that will make stock outperformance challenging in the meantime,” BMO Capital Markets analyst Daniel Salmon said in a note to clients.
Up to Wednesday’s close, Twitter shares had risen to about 30 times projected 2014 sales.
(Editing by Ted Kerr)