NEW YORK (TheStreet) -- I would love to be the first person to slap Twitter (TWTR) with $140 price target. That number seems fitting, doesn't it? But sadly, that's not likely to happen any time soon. Not from me or from any of the 30 brokers who cover the social media giant.
Twitter shares closed Tuesday at $31.85, falling close to 18%. The stock, which traded as high as $74 in December, went public at $26 last November. But since Twitter peaked, shares have plummeted close to 60%, and are down 50% year to date. Tuesday's punishment was out of the ordinary. But that doesn't mean investors should rush in to buy.
The catalyst for Tuesday's decline was Twitter unlocking its shares that were prohibited from being sold until six months after Twitter's initial public offering. According to The Wall Street Journal, there were potential 400 million shares that could be sold.
I don't want to get too technical with IPO rules and lock-up expiration, but as part of early standard start-up procedures, companies will typically issue millions of shares to (among others) employees, venture capitalists and mezzanine investors. As a way to prevent shares from flooding the market since these early shareholders will want to cash out, a ban on selling, or lock-up period was created.
In this case, Twitter had only averaged a little over 13 million shares traded per day. Tuesday more than 90 million shares exchanged hands, more than 7 times its normal volume. Clearly, the early buyers couldn't wait to cash out. The pressing question now is to what extent can Twitter rebound from a day like this. And how much of an opportunity is there for new investors.
This is where there trust in co-founders Jack Dorsey and Evan Williams has to be measured. They have vowed to not sell their shares. Along with CEO Dick Costolo, they are in this for the long haul. But it's not going to be easy. Unlike Facebook (FB), which has averted user monetization issues to become an advertising juggernaut, there is still no clear path for Twitter.
Although there are some early/startup similarities between the two companies, Facebook was already approaching 1 billion users prior to its IPO in 2012. By contrast, Twitter's stock has plummeted as evidence of slowing growth emerged. In the most recent quarter, Twitter reported 25% user growth, which slowed down 5% sequentially. This is despite posting recorded revenues of $250.4 million, which was up 119% year over year.
What's more, although it was encouraging to see the 15% growth in the number of times users refresh their pages to look at tweets, this figure was still down 26% year over year. This is a clear sign that users are getting disengaged. It's as if they are asking, "what's the point?"
Ever wondered what happens when you send out a tweet? What's the benefit beyond trying to grow your follower count. Next, have you noticed there are people with 10 total tweets on their profile but with 40,000 followers.? Then there are those with 40,000 tweets with only 1,000 followers. Why do followers mysteriously drop off from one day to the next? How does this service work?
These are the questions Twitter's management must clear up. But they insist they want Twitter to become more mainstream. But how can Twitter, which appears on almost every television commercial and product package, be any more mainstream?
As a writer, I use it daily to share my articles and gauge reader interest. But I can't imagine ever needing Twitter for anything else. Facebook, by contrast, brings families together. LinkedIn (LNKD) has carved out a successful niche as the business professional's network.
Disappointingly, Twitter, which became cool by placing a 140-character limit on messages its users can send, is now in need of more character. It needs a clear purpose before ever achieving that magical $140 price.
>>Read More: Why Twitter Stock Hit an All-Time Low Today
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At the time of publication, the author held no position in any of the stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.