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

Twitter has been slapped with its third analyst downgrade in two weeks, and shares are suffering as a result. Is now the time for investors to bail out, or is Twitter still fundamentally sound enough to warrant an investment?

Jan 8, 2014 at 12:52PM

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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Fool contributor Mark Reeth has no position in any stocks mentioned. The Motley Fool recommends Facebook and Twitter. The Motley Fool owns shares of Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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