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FACEBOOK (FB)

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Facebook Inc : Investors dump Twitter stock as results divide Wall Street

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02/06/2014 | 04:17pm CEST

Twitter Inc's shares fell almost 25 percent on Thursday, wiping out about $9.8 billion in market value, after the company reported a sharp slowdown in user growth.

The stock, which debuted at $26 in November, hit a low of $50 in early trading. The shares hit a peak of $74.73 in late December as investors bet that the social media platform could become as ubiquitous as Facebook.

Analysts, unlike investors, were divided on the company's outlook a day after it reported fourth-quarter results.

Twitter, according to broker assessments, is either the overvalued owner of a niche product whose potential is fading or an undervalued phenomenon that is set to give Facebook a run for its money in mobile.

"We remain firmly in the latter camp..." said Deutsche Bank, one of one at least six brokerages that raised target prices or ratings on Twitter's stock.

Deutsche, in a note entitled "Great Quarter, Aside From The Most Important Metric", said it was impressed by Twitter's improving monetization and expected slowing user growth to reverse during 2014.

The broker, which sees Twitter on its way to 1 billion user, maintained a "buy" rating on the stock and raised its price target to $65 from $50.

Facebook has about 1.2 billion users.

UBS, on the other side of the argument, issued a "sell" recommendation on the stock and cut its price target to $42 from $45. It was one of at least eight brokerages to cut their target prices or recommendations on Twitter's shares.

"A lack of mainstream adoption or a more simplified use case was a worry of ours coming out of the IPO and seems to have come to the fore faster than we had anticipated," UBS analyst Eric Sheridan said in a note.

Twitter reported better-than-expected fourth-quarter revenue of $243 million in its first results since the IPO.

Investors, however, zeroed in on the anemic user growth, as well as a sharp decline in a measure of user engagement.

Twitter averaged 241 million monthly users in the December quarter, up just 3.8 percent from the previous three months. That was the lowest rate of quarter-on-quarter growth since the company began disclosing user figures.

But the company also said it made $1.49 per 1,000 timeline views, a 76 percent jump from the same quarter of 2012.

"We believe the accelerating user growth and engagement, supplemented by improvements in monetization, will drive continued financial outperformance in the year ahead," Goldman Sachs analysts said in a note.

Goldman raised its target price to $69 from $65 and maintained its "buy" rating on the stock.

Twitter CEO Dick Costolo expressed confidence that Twitter's user growth would improve in 2014 once users get used to a change in layout to help new users and take to a new onboarding process for newcomers to Twitter's mobile app.

"Management offered lots of confidence in reaccelerating those (active user) figures, but that will likely become a 'prove it' story that will make stock outperformance challenging in the meantime," BMO Capital Markets analyst Daniel Salmon said in a note to clients.

Up to Wednesday's close, Twitter shares had risen to about 30 times projected 2014 sales.

(Editing by Ted Kerr)

By Saqib Iqbal Ahmed

Stocks treated in this article : Facebook Inc, Twitter Inc
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Financials ($)
Sales 2017 38 517 M
EBIT 2017 17 499 M
Net income 2017 14 185 M
Finance 2017 33 627 M
Yield 2017 -
P/E ratio 2017 31,93
P/E ratio 2018 25,78
EV / Sales 2017 10,8x
EV / Sales 2018 8,12x
Capitalization 449 420 M
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Mean consensus OUTPERFORM
Number of Analysts 44
Average target price 169 $
Spread / Average Target 8,7%
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Managers
NameTitle
Mark Elliot Zuckerberg Chairman & Chief Executive Officer
Sheryl Kara Sandberg Chief Operating Officer & Director
David M. Wehner Chief Financial Officer
Michael Todd Schroepfer Chief Technology Officer
Atish Banerjea Chief Information Officer
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Sector and Competitors
1st jan.Capitalization (M$)
FACEBOOK34.78%449 420
TENCENT HOLDINGS LTD48.73%340 456
TWITTER INC13.50%13 520
LINE CORP-0.37%7 870
SINA CORP56.16%6 257
MIXI INC54.57%4 724
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