On Tuesday shares of Twitter (NYSE:TWTR) plummeted by 18 percent. The reason for the plunge was the fact that the “lockup” period ended, meaning that May 6 was the first day that insiders were allowed to sell their shares on the open market.
The stock has already had a rough 2014 with shares down 50 percent. Of course this is after an incredible run up since the November IPO. Furthermore, while the stock is hitting new lows as a publicly traded company, for many of the insiders that were locked into their positions until today, $32 per share is an incredible price to realize. While I’m sure the insiders who sold their holdings would have rather gotten $50 per share, they are likely sitting on triple digit, or even 4-digit, gains on their initial investments.
Given that Twitter was already trending downward, and given that we will potentially see more shares hit the market as the lockup period expires, I don’t think the downtrend is over. Nevertheless, there is little doubt that Twitter plays an integral role in today’s social media world, and management has done an excellent job finding ways to monetize this platform. As a result, I believe that there is some point at which there is sufficient value in Twitter shares for value investors to start buying.
But it is difficult to know where this point is for a couple of reasons. First, Twitter isn’t generating any earnings, and so it is impossible to assign a price to earnings multiple on the stock unless we assume that revenue growth will outpace expenditures so that at some point in the future the company will have earnings. But this could be in 2015, or maybe it won’t be until 2020.