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Twitter Bubble Price Crash? An Ad Per Tweet Solution?

Companies / Tech Stocks Nov 08, 2013 - 05:32 PM GMT

By: Nadeem_Walayat

Companies

Twitter that has yet to make a single dime of profit was floated Thursday on the NYSE at $26 per share and immediately saw its stock price soar to close up 73% on the day at $44.90, valuing the company at more than $24 billion.

The obvious comparison for what could happen next to the Twitter's stock price is the Facebook example, which peaked on its IPO day as many rushed to bet heavily on one of the social networking backbones of the internet, dreaming of monetizing on its then 900 million users.


At the time I wrote - 18 May 2012 - FaceBook $100 Billion Internet IPO Emperor Has No Clothes, Investors Could Lose 85%

Facebook in my opinion is a re-run of the lastminute dot com bubble IPO, that saw the value of initial investments all but wiped out. Facebook is probably being priced at X6 its value therefore investors have the potential to sufferer as much as a 85% loss on the IPO before the stock hits bottom.

The expected slump in the Facebook stock price could start as early as today when the stock starts trading.

Hedging Opportunity - Buy Google and Short Facebook

Bottom line - If you want to invest in Facebook, then you will be able to pick up the stock at a fraction of its IPO price in the not too distant future.

How has the Facebook stock price performed since its May 2012 IPO?

The stock price crashed from it's first day close of $38 to just $18 less than 4 months later, a 53% price crash, however this year Fed QE-4-Ever and an monetization blitz has helped to inflate the Facebook stock price to stand at $47.50. The consequences of which has been that the number of 'REAL WESTERN' users has continued to diminish since the IPO as most of the new users are either situated in the developing world, on incomes of less than 1/10th of that in the West, or outright frauds, Likes and Post farms hired to inflate stats, again situated in developing nations such as Bangladesh.

Implications for Twitter are even worse than for Facebook investors because Twitter is even more over valued than that which Facebook was at IPO for Twitter reported a loss of $132mln compared to Facebook's $1 billion at its IPO, but don't worry because Twitter promises that its earnings will some how magically jump from -$134 mln to +$1billion next year, though the only way I can see them coming close to achieving this is if they put up an ad per tweet. In my opinion, in a best case scenario Twitter will be lucky to make $400 million in profit next year which would value the company at 60X earnings, which translates into a potential 50% STOCK PRICE CRASH! And that's my best case scenario.

So just like Facebook before, I expect the Twitter stock price to crash to trade at LESS than 50% of its last closing price ($44.90), the only thing that would prevent such an eventuality is if Twitter ramped up advertising to the rate of an Ad per Tweet!

What about the long-term prospects for Twitter and Facebook ?

Today Twitter says it has 230 million users of which perhaps 100 million of whom are real active users, which means whilst in the future the official number of users will continue to grow, for anyone can create 100's of accounts for themselves, however the number of active individual western users is likely to shrink, the rate of attrition will only become apparent in future years as Twitter will not be able to capitalise upon fake and poor users, because whist the mainstream press is dumb enough to believe the official states, the advertisers usually aren't so dumb as they will see that their ad spending fails to convert into sales because the users that they thought were there are just not there!

So given what happened to past social media giants such as Bebo and Myspace, it is highly probably one, if not BOTH Facebook and Twitter will be trading as mere shells of their former selves with less than 1/100th of the real active users as opposed to the bots, and third world Facebook Likes and Tweet farms.

Source and Comments: http://www.marketoracle.co.uk/Article43043.html

Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-2013 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 25 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of four ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series.that can be downloaded for Free.

The Stocks Stealth Bull Market 2013 and Beyond EbookThe Stocks Stealth Bull Market Update 2011 EbookThe Interest Rate Mega-Trend EbookThe Inflation Mega-trend Ebook

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 600 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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