Twitter’s Recent Market Correction Doesn’t Mean Its Sky Is Falling

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Twitter has had a rough few days in the markets, slipping from north of $74 to just over $60 at the end of trading today. That’s not even half the story, however: Twitter’s December is one for the record books.

If dropping almost 20 percent in a few days of trading is dramatic, so too is Twitter’s epic run from December’s opening price of $40.76 to its high in the month of $74.31, a rise of more than 82 percent in just 18 trading sessions. The massive rise in Twitter’s value far outstrips the ensuing minor correction.

Put another way, Twitter is still up around 50 percent in the month, a huge rise in its value that no one seems to understand. Twitter has yet to report earnings as a public company, so we have essentially no new information that we can use to vet the firm. The rise in its stock price is therefore hard to attribute to any specific thing other than exuberance.

As TechCrunch reported earlier today when Twitter’s slide was underway, investors currently do not expect the company to report positive earnings per share until 2015. Therefore, the public will likely value Twitter on its ability to grow its revenue, a financial metric that is slowing for the company.

However, Twitter itself remains, presumably, as strong as it was when it went public at $26 per share. Therefore, the saga of its stock price can be essentially discounted until we have more data on the firm.

And that investors are willing to take profits after a huge bull run is about as surprising as the sun deciding to rise tomorrow. So keep in mind that Twitter’s rise is likely mere speculative earnest. The real report comes with earnings.

But let’s have some fun. The New York Times:

Max Ganik has no doubts that Twitter’s stock — up 145 percent since it first began trading on Nov. 7 — is firmly in bubble territory.

“But that doesn’t mean it’s going to stop going up,” said Mr. Ganik, 16, a junior at a high school in Scarsdale, N.Y., who doubled his money by lunchtime on Thursday trading Twitter stock options, and planned to dive back in on Monday. “Traders are going to drive up the price. The valuation doesn’t actually matter at this point.”

It’s all different this time!

Top Image Credit: Flickr