Twitter’s wings have been clipped.
The microblogging company — whose shares have been soaring since its Nov. 6 IPO, more than tripling its $26-a-share offering — fell back to earth on Friday.
Its shares lost 13 percent of their value, tumbling to $63.75, after Benjamin Schachter, an analyst with Macquarie Group, downgraded the San Francisco tech company.
Twitter’s big recent run-up had little to do with an improved business plan.
“Nothing fundamentally has changed since our neutral initiation on Dec. 11, except that shares have risen 40 percent (compared to 2 percent for the S&P 500),” Schachter wrote in a note to clients.
Twitter shares closed Thursday at $73.31, well above Schachter’s $46 target, before he clipped the bird:
“We expect many other analysts will quickly have to either justify raising targets (based on little new information) or downgrade.”
The recent Twitter run-up came partially because of excitement over Facebook’s projected mobile ad revenue.
Schachter, in his report, pointed out that Twitter’s future is promising as the popular microblogging network may see huge growth potential in online advertising.
But realizing that potential will take time, Schachter reasoned. One point he made was that Twitter, which has no profits, needs to hire a large sales force in order to begin monetizing that potential.
There are “many opportunities, but [they] will take time and additional headcount,” Schachter wrote. “While we are quite bullish on Twitter’s potential, we highlight that it takes time and people to execute against opportunities.”
Facebook shares have also seen a recent rise, with the stock up nearly 20 percent over the last month — on similar frothy valuations — before a 4 percent pullback Friday.
The banks who underwrote Twitter’s Nov. 6 initial public offering have lower revenue forecasts than those not involved in the public offering, Schachter noted in his report.
That, he added, is a sign of a consensus that Twitter is likely to fall.
“There is a meaningful gap between revenue consensus of underwriting banks and consensus for other firms, with underwriting banks 15 percent below for 2014 projections and 28 percent below for 2015 forecasts,” Schachter’s report stated.
His report also said, “This suggests that in conversation with Twitter’s management team ahead of the IPO, Twitter guided toward lower growth numbers over the next two years. While this may be related to conservatism on the part of management, it is also possible that published consensus as it stands now is too high, and will have to be revised down after Twitter reports 4Q’13 earnings.”
Schachter projects Twitter — with a $35.3 billion market cap — will not actually become profitable until the fourth quarter of next year.