I’m an avid believer in the old adage to buy when there’s blood in the streets.

Well, Twitter (TWTR) is hemorrhaging.

The stock has been in steady decline since it peaked on the day after Christmas at $73.31. And its descent was just exacerbated by the expiration of the lock-up period.

[ad#Google Adsense 336×280-IA]Lock-up periods prevent insiders, venture capitalists and other investors from selling shares of an IPO directly after trading begins.

Twitter’s lock-up period freed up about 470 million shares, or 82% of the company’s equity – and shareholders seized the opportunity to dump shares.

The stock is down over 20% since the lock-up period ended.

I was hoping today’s column would end with a recommendation to buy Twitter shares on the cheap.

But that’s not going to happen.

Consider that when Facebook’s (FB) lock-up period ended, 800 million shares were freed up – yet its stock spiked 13% higher. Facebook’s stock kept pushing northward from there.

Facebook’s experience isn’t an isolated incident, either. A stock’s reaction to the end of the lock-up period oftentimes offers a peek into its performance over the next six months.

Perhaps even scarier for Twitter, though, is the emergence of other social media platforms like Instagram.

Instagram is presently in hyper-growth mode, just like Twitter once was.

Social media is a slippery slope.

Every eyeball on Instagram is one less eyeball on Twitter. And once you start losing users, it’s hard to ever get them back (just ask MySpace).

On such merits, let’s pass on Twitter, despite there being blood in the streets.

Onward and Upward,

Robert Williams


Source: Wall Street Daily