Despite seeing its shares rise after its debut on the New York Stock Exchange last month, shares of social-networking company Twitter Inc has been downgraded by Macquarie Capital, claiming that the stock went too fast and too far.
New York-based Macquarie analyst Ben Schachter lowered his rating to underperform from neutral, which translates to sell. Since Macquarie initiated coverage on Dec. 11, Schachter said in a report that Twitter's shares had jumped 40% without any improvement to the social networking company's fundamentals.
"We continue to believe that Twitter as a company has a bright future and many opportunities ahead. However, as a stock, we believe nothing has changed over the last 15 days to justify the rise in valuation," Schachter reasoned in a report.
As of 9:57AM in New York, San Francisco-based Twitter's shares dropped 5.5% to $69.28 per share. Through yesterday, Twitter's shares almost tripled from its inital offer price of $26 per share. It also surpassed Schachter's 12-month price target of $46.
Despite being unprofitable, Twitter's valuation was at $41.6 billion based on yesterday's closing price, which makes it larger compared to profitable and stable companies Time Warner Cable Inc, Viacom Inc and Target Corp. Investors, said a Bloomberg report, clearly rely on Twitter to gain from an increase in mobile-advertising sales. However, concerns about Twitter's capability to match its fundamentals to its trading value were raised after wide discrepancies in analyst revenue estimates were noted, Schachter said. Moreover, he said the IPO of Twitter has a relatively small number of underwriters, which will lead to a situation wherein over a dozen banks that initiated coverage do not get detailed guidance from the social networking company's management.
Schachter also added that Twitter needs to increase its staff, as the number of employees it has hired is just half of the employees facebook Inc has hired. He said, "It takes time and people to execute against opportunities."
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