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Why Twitter Shares Plunged 10% in August

By Evan Niu, CFA - Sep 8, 2015 at 9:00AM

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Twitter's had a rough and tumble couple of months. Here's why.

What: Shares of Twitter (TWTR -1.12%) plunged by 10% in August, according to S&P Capital IQ data. Even after losing 14% in July due to a dismal earnings report, investor confidence continued to sour. It also didn't help that the broader markets were extremely volatile due to concerns about China's ongoing slowdown.

So what: Twitter reported second-quarter earnings at the very end of July, and management provided blunt remarks regarding Twitter's core product and its deficiencies. Not even the inevitable acquisition speculation sparked from the falling valuation was enough to support shares. Then in early August, larger rival Facebook launched a live-video streaming feature to rival Periscope. Twitter is also reportedly considering a board shakeup.

Shares bounced briefly after Twitter announced a new content deal with the NFL and a handful of company insiders made open market purchases. Twitter then dropped the 140-character limit in Direct Messages, although public tweets are still limited. Near the end of August, global markets tanked amid fears surrounding China's macroeconomic conditions, and the SEC began questioning Twitter about why it was constantly changing the operating metrics that it reports surrounding user engagement.

Now what: It's been a rough couple of months for Twitter. As you can see, a string of negative news followed a disappointing earnings release. Shares briefly dipped below the IPO price of $26, and currently trade within that range. With Twitter now trading at all-time lows, the natural question is whether current prices will prove to be an attractive entry point or that more downside is in store.

The issue with Twitter has always been user growth, and if the company fails to restructure the core product in a way that can attract mainstream users, it may never be able to live up to Wall Street's expectations.

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