SAN FRANCISCO -- Twitter has blown past many analysts’ price targets with shares topping $60 on Friday, a new high.
Twitter's shares have risen 44% this month. That makes it one of the biggest Internet companies by market cap.
But can it sustain those stratospheric levels?
Apparently a lot of people don’t think so. Short sellers are betting that shares will fall, especially amid growing skepticism from Wall Street analysts.
S&P Capital IQ analyst Scott Kessler is one of those skeptics. He says the short interest in the stock -- the percentage of shares on loan -- stands at about 3.26% of outstanding shares.
“I think it’s fair to say there is a lot of skepticism around the company and the stock, and that’s coming from analysts like myself with less-than-positive opinions,” Kessler said.
Also, there just isn’t that much Twitter stock for people to buy. The company made 70 million shares available when it went public in November.
“The float was relatively small,” Kessler said. “There is just a relatively small percentage of the company’s stock available on the public market right now.”
Kessler said some of the demand may be coming from investors looking for a momentum stock. He thinks those investors will end up disappointed. His price target on Twitter is $30. That's half of Friday’s close.
“As an analyst who focuses on the fundamentals and has had a sell opinion on Twitter, it has been confounding and it has been frustrating,” Kessler said. “The company may have a lot of opportunity, but we think the stock is excessively valued at best at this point.”
Analysts at Wells Fargo Securities and SunTrust Robinson Humphrey also cut their ratings this week.
Of the lead underwriters, two have “hold” ratings on the stock and one has a “sell” rating.
Still, there seems to be growing optimism over the company’s ability to make more money from online advertising.
Much of that is centered on MoPub, a mobile advertising start-up that Twitter bought in September, shortly before making public its intention to go public. MoPub’s technology will enable Twitter to sell ads off Twitter, too. On Friday, Twitter released MoPub’s financials.
In 2012, MoPub generated $2.7 million in revenue. In the first two quarters of 2013, it brought in $6.5 million in revenue. In the third quarter, MoPub brought in $5.6 million. It has also incurred losses, $8.1 million in 2012 and $5.5 million in the first nine months of 2013. But investors like the trajectory.
Another reason for optimism: RBC Capital Markets analyst Mark Mahaney recently conducted a survey with Ad Age magazine that found that 59% of advertisers said they would increase ad spending on Twitter in the next year, with only 4% saying they planned to decrease spending. Mahaney nearly doubled his price target on Twitter to $60.
"We are increasing our estimates based on the positive results of our advertiser survey, our industry checks and our increased conviction in Twitter’s advertiser tools and user functionality improvement potential,” Mahaney said.
But most analysts don't think Twitter has that much potential -- at least not yet.
“While we are quite optimistic about Twitter’s growth profile in the near term, longer-term competitive positioning, uncertainty around growth trends, and valuation are keeping us on the sidelines,” Macquarie Securities analyst Ben Schachter wrote in a research report.
“Clearly the key positives for the company are its mobile strengths and long-term potential to grow into a mass-media platform while rapidly ramping monetization,” Schachter wrote. “However, the competitive landscape on mobile is sure to increase and it remains unclear to us if Twitter will ever reach the same mass market penetration as Facebook (let alone the monetization potential). Furthermore, as the rise of Instagram, Pinterest, Snapchat and others is showing, the competitive landscape of the social/mobile space may see significant change.”
Schachter set his price target at $46.