Trading Analysis: Twitter shares, a year in flight!
Wow time flies, it’s hard to believe that it has been a year already since Twitter shares left the runway and started flying solo as a public company. Over the last year the shares have had their ups and downs but these have not been unusual for a stock in its first year of trading.
On today’s first anniversary of trading, this seems an ideal time to look back at how the shares have performed to date and their trading outlook for the year ahead.
Twitter’s Performance Relative to Previous Internet IPOs
Over the last decade there have been a number of big Internet IPOs but their post debut performance has varied dramatically. Google remains the gold standard as a stock that roared out of the gate and never looked back.
Facebook, on the other hand, was the poster child for how not to debut for a long time as its shares struggled for over a year before gaining traction.
Twitter, meanwhile, has followed a middle path with its performance most similar to that of LinkedIn following its IPO back in 2011.
Twitter shares took off in their initial weeks of trading as interest in the IPO continued into share trading with people who missed the IPO jumping on board.
After this initial burst of enthusiasm, the shares settled back while markets digested increased supply from shares coming out of lockup and traders adjusted their expectations and valuations to reflect Twitter as another public company not just a hot IPO and as the company started to build a track record.
Between the six and nine month marks give or take a few weeks, the shares traded below the initial trading price, which is not unusual and was similar to LinkedIn’s performance and remained well above their $26.00 IPO price. The shares then climbed back into positive territory, but in the last few weeks performance has diverged. Heading into its first anniversary, LinkedIn continued to climb while Twitter has gone into another slump, recently falling back under its initial trade price.
Twitter trends and trading outlook
It takes time for a company to build a track record. Traders may recall that Facebook started out as a big disappointment before its mobile strategy gained traction and its sales took off.
Twitter also has had its ups and downs. The strong second quarter results that propelled the last big advance were boosted by increased activity during the World Cup. A retrenchment after such a big event is common but because of Twitter’s limited track record, the street is still unsure of how much of the Q3 slowdown is a normal correction or if growth is slowing. As time goes on and more big events come and go, the street should get a better handle on how events affect results.
Expectations had been running very high going into the most recent results which have been readjusted to reflect a more moderate growth outlook. This is not specific to Twitter, however, a number of technology momentum plays have taken big haircuts after earnings this quarter including Netflix and Facebook. It does mean though that market momentum may not be enough to drive advances going forward, management is going to need to deliver strong results to attract positive attention.
The chart above shows Twitter’s share performance in the year since its debut. After an initial rally to its peak just short of $75.00 last December, the shares fell through the first half of 2014. In May, the shares completed a double bottom near $29.50 and rallied up toward $56.00, completing a common 50% retracement of its previous selloff and nearly a 62% retracement.
In the last month, the shares have come under pressure again, gapping downward after its earnings report and continuing to trend lower. The shares have started to find support near $40.00 where a round number and Fibonacci levels cluster. Next downside support appears near $36.35 then closer to the 52-week lows.
RSI is oversold suggesting the potential for a trading bounce but past trips into overbought and oversold territories indicate the shares can be overextended on momentum for some time before reversing course.