NEW YORK (TheStreet) -- Twitter (TWTR) unlocked the gates and social media investors ran for the exits. Today is the first day that many Twitter insiders have been permitted to sell their shares. And sell, sell, sell they did. The stock price dropped nearly 18% today.
On StockTwits.com, investors blamed Twitter insider selling for sparking a broad sell-off in social media stocks.
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 155 times 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 155 times earnings, then why should anyone hold any social media stock with multiples in the high double digits?
Of course, some investors said that the 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.
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
At the time of publication the author held no positions in any of the stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.