Why Twitter Might Tank in 2014

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Twitter sank 4% this morning after Cantor Fitzgerald downgraded the microblogging giant from hold to sell. Shares have since rebounded from earlier lows, but Twitter is down nearly 20% from its post-IPO highs.

So what: Along with the downgrade, analyst Youssef Squali maintained his price target of $32, representing about 48% worth of downside to yesterday's close. While contrarians might be attracted to the Twitter's recent share-price slump, Squali believes the company's still-lofty valuation and looming lockup expiration will continue to pressure returns.

Now what: According to Cantor, Twitter is a relatively unattractive way to play the social media space at this point. "Putting TWTR's valuation relative to its IPO in context, even compared to other high-flying Internet IPOs, Twitter is in a class of its own," Cantor cautioned. "TWTR's 30.8x EV/Revenue multiple nearly 2 months post-IPO compares to 15x for Google, 16.5x for LinkedIn, 8.5x for Facebook, and 4x for Yelp around the same period." So while it might be tempting to pounce on the stock's recent pullback, I'd agree that holding out for a better price seems prudent.

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The article Why Twitter Might Tank in 2014 originally appeared on Fool.com.

Fool contributor Brian Pacampara has no position in any stocks mentioned. The Motley Fool recommends Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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