Twitter Insider Sell-off Undermines Social Media Valuations

Twitter unlocked the gates and social media investors ran for the exits. On StockTwits.com, investors blamed Twitter, $TWTR, insider selling for sparking a broad sell-off in social media stocks.

"@deltaStrikejj: fact that $YELP is down 12% and $LNKD -6% says this $TWTR collapse is way more than just a share lock up hitting mrkt"

— Tracey Ryniec (@TraceyRyniec) May. 6 at 03:29 PM

Twitter, Yelp, $YELP, and LinkedIn, $LNKD, each posted significant losses near the end of the trading day. Even Facebook, $FB, widely considered the most proven social media stock, fell nearly 4%.

Tech stocks not doing so hot $TWTR down 16.59%, $GRPN down 2.47%, $YELP down 12.59%, $LNKD down 6.2%…Sell in May… whats that old adage?

— Options Elite (@OptionsElite) May. 6 at 03:29 PM

Selling restrictions expired on 480 million shares held by Twitter insiders Tuesday, enabling early investors and employees to cash out of shares that had fallen nearly 50% since February all time highs.

Investors figured that if Twitter insiders didn’t think the stock was worth its 155X expected 2015 earnings multiple then they probably shouldn’t bank on the micro-blogging company living up to the hype either.

$TWTR well it's nice to see the conviction of insiders for the long term development of twitter ……….

— BiopharmaPro (@BiopharmaPro) May. 6 at 03:25 PM

Many took the argument further to question the valuation of all social media stocks. If Twitter wasn’t worth 155X earnings than why should they hold any social media stock with multiples in the high double digits?

$LNKD I would short this to 0. $TWTR and $YELP as well. When you don't sell a product, you get this outcome. Bubbles everywhere bursting

— The NOTORIOUS kiksbutt (@kiksbutt) May. 6 at 03:28 PM

Of course, some investors said that selling was overdone. Panic, not a careful evaluation of social media growth prospects, fueled the selloff, bulls argued. After all, why should Twitter investors taking profits after being forced to stomach losses for the past several months indicate that LinkedIn shares were suddenly worth less? LinkedIn has more users than Twitter and is growing at a faster rate. Facebook is an established company with more than a billion mobile users alone. And Yelp posted 65% growth in its business user accounts last quarter, a much larger percentage that Twitter, which saw its user base grow 25% in the first quarter.

$TWTR lock-up expiration creating opportunities in $YELP and $LNKD

— Ben Rabizadeh (@benrab) May. 6 at 03:39 PM

Still, many investors said they would not try to catch the falling knives popping the social media bubble.

$TWTR 20's coming soon. Don't catch that falling knife

— nick jones (@mamahung) May. 6 at 03:51 PM


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