Does Social Media Companies Like Twitter Inc (NYSE:TWTR) Need A Reality Check?

Posted by Kristi Scott January 28, 2014 0 Comment 1256 views

The concerns about the valuation of current day’s social media giants have set in. Fears are floating around that market correction may take over the boom and then expose social media to a harsh reality check which could very well be the need of the hour. Twitter Inc (NYSE:TWTR) is one such social media behemoth which is not all too immune to such reality checks.

The microblogging pioneer was exposed to a harsh reality when Marc Faber who is a well known market expert blatantly put down the stocks and the meteoric rise of the social media as a mere passing phenomenon rather than a boom. Faber mentioned this in the weekend edition of Baron’s Roundtable.

Faber has often taken bearish stances when it comes to stocks but this time it seems all too real even for him as the return on the stock is touted to be at 75-100 times the investment. Experts had also pointed out that the stock would drastically change course since the downgrades that Twitter Inc made at the beginning of the year and this was just before Goldman Sachs and other firms had upgraded the stock for Twitter.

The Reality

The reality is that Twitter shares have come down to a value of under $58 from their peak value of around $75. Faber said that he looked stocks of Tesla, Netflix, Twitter and Facebook to name a few and said that they are good companies but they were grossly overpriced in the current scheme of things.

Shares for Twitter were down by around6.2% at the close of trading on the close of latest trading, this indicates a post IPO range to $74.73. This decline has become somewhat of a trend among social media companies with a few exceptions.

Twitter dwarfs the social media giants by far, companies like Facebook and LinkedIn compare diminutively as its valuation reaches 28 times its expected revenue from 2014. However twitter is sure to lose some money this year as the stock values for the company are way too high and exposed to sudden shorting out.

About Kristi Scott

Kristi Scott joined GDP Insider in 2005 as a Wall Street reporter for the Business and Market section. Kristi covers the stock market, financial markets and personal finance. Her awards have come from the National Federation of Professional Writers, the Ohio Newspaper Association, the Cleveland Press Club, the Society of Professional Journalists and Suburban Newspapers of America. Kristi was named SNA's national Journalist of the Year

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