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Twitter Gets Hit With Another Downgrade--Is it Time to Panic?

Social media giant and market newcomer Twitter (NYSE: TWTR  ) had been enjoying quite the post-IPO run until a few weeks ago, when analysts began downgrading the company. Twitter was hit with a downgrade from Macquerie two weeks ago, then another by Morgan Stanley earlier this week. The latest blow comes from Cantor Fitzgerald, which stated that the company's big post-IPO rally had outstripped its fundamentals.

Motley Fool Senior Analyst Bryan White believes that the downgrades are coming due to a combination of fundamentals and high valuation. He doesn't think analysts want to repeat what happened with Facebook's (NASDAQ: FB  ) IPO, plus he acknowledges that social media advertising is still in its infancy and that Twitter has a lot to prove. 

Speaking of Facebook, Bryan thinks the social media titan makes more sense for advertisers than Twitter. It's a more proven company, and its successful development of its mobile platform is impressive. Meanwhile, Bryan would counsel patience for potential Twitter investors--although today's decline is a tempting entry point and Bryan likes the company in the long term, it still needs to prove itself with a successful earnings season or two.

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Read/Post Comments (3) | Recommend This Article (0)

Comments from our Foolish Readers

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  • Report this Comment On January 08, 2014, at 5:53 PM, oliverm wrote:

    I bought Twitter and Michael Kors last week after reading the last Rule Breaker's issue's recommendations for these stocks.

    How is it that just after you recommended them, you are publishing an article indicating all the upcoming problems with Twitter and forecasting even lower price for 2014. I already lost much money on this stock in just few trading days...

  • Report this Comment On January 08, 2014, at 6:31 PM, tjwheel1967 wrote:

    Ditto, it seems either the two downgrades are a knee jerk reaction, or the article distancing itself from the recommendation is. The stock is either a good pick or it is not based on the Fool Rating System.

  • Report this Comment On January 09, 2014, at 3:38 PM, 76R906 wrote:

    It is interesting that most commentators I've heard or read say that twitter is overvalued in the short-term, hold for long-term performance, and BTW they use it everyday.

    The RB recommendation was unfortunately-timed, and I've lost 22% on my purchase, but I agree with the person who said "forget about it and check back in a year."

    I'm also long LNKD, which is also underwater.

    With TWTR and LNKD I'm making a long-term play in social media, and both companies together (especially now) comprise only 4.4% of my portfolio. So, I can ride it out.

    BTW, I will never, NEVER own shares of FaceBook. For me, there are serious ethical issues around the way this company does business.

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