Twitter Inc. shares plunged to a record low after the company lifted restrictions on share sales by insiders and early investors, renewing concerns that Internet stocks are overvalued and sparking a sell-off in social-media companies.
The stock slumped $6.90, or 18%, to $31.85 as about 480 million shares from insiders became eligible for sale, more than quadrupling the amount available for trading. They declined even as early investors Chris Sacca and Rizvi Traverse Management pledged not to sell, declaring confidence in the San Francisco company.
Twitter's shares have slipped this year after the company reported slowing user growth, raising concern that it may not be able to add more mainstream members. Still, the company trades at a level that makes it more expensive than Facebook Inc. or LinkedIn Corp., based on projected 2014 sales. The stock has gained 23% from its $26 IPO price in November.
"The lockup is the straw that broke the camel's back," said Daniel Ernst, an analyst at Hudson Square Research in New York. "If Twitter's growth was still good, if the company didn't have such a high valuation, if its margins were better, we wouldn't have today's stock situation."
Twitter's decline Tuesday was the biggest drop compared with lockup expirations from Facebook, LinkedIn, Groupon Inc., Pandora Media Inc. and Google Inc. since 2004, according to data from Bespoke Investment Group.
Trading volume was higher than it was on the company's market debut. The decline leaves Twitter with a market value of $19.2 billion. That compares to the $19 billion Facebook agreed to pay for WhatsApp Inc., a messaging application, in February.
The company said last week that its monthly active users in the first quarter reached 255 million, with year-over-year growth decelerating to 25% from 30% in the previous period.
In total, early investors who own at least 205 million of the shares pledged to hold on to their stakes. Chief Executive Dick Costolo and co-founders Evan Williams and Jack Dorsey said they are hanging on to their stock. Benchmark, a venture capital firm, and Rizvi Traverse Management, whose 14% ownership makes it the single biggest investor, won't sell either, people with knowledge of the matter have said. Some of Sacca's holdings are included in Rizvi.
Other Internet stocks were punished. Yelp Inc. slid 13%, the most since November 2012, while Pandora Media lost 8.9% after plunging 17% on April 25.