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To some, Twitter stock is a #bubble

“The valuation doesn’t actually matter at this point,’’ says Max Ganik, who trades in Twitter stock options.
“The valuation doesn’t actually matter at this point,’’ says Max Ganik, who trades in Twitter stock options.Uli Seit/New York Times

SAN FRANCISCO — Max Ganik has no doubts that Twitter's stock, up 145 percent since it began trading Nov. 7, is firmly in bubble territory.

"But that doesn't mean it's going to stop going up," said Ganik, 16, a junior at a high school in Scarsdale, N.Y., who doubled his money by lunchtime on Thursday trading Twitter stock options, and planned to dive back in Monday. "Traders are going to drive up the price. The valuation doesn't actually matter at this point."

Ganik is certainly on the young side for a Twitter trader — and as a minor, he needs his mother, Dahlia, to handle the actual trades. But his sentiments help explain the mixture of hope and cynicism that has pushed up Twitter's stock by 76 percent from Dec. 1 through Thursday, then sent the shares plunging 13 percent Friday — all without any changes in the company's prospects.

Although tech stocks may not have quite returned to the anything-goes era of Pets.com and TheGlobe.com, the rapid rise in Twitter's stock is a sign of the overall giddiness infecting Silicon Valley.


Internet stocks have run up sharply this year, exceeding the broad stock market's strong rally. Venture capitalists and angel investors are flush with cash and complain that they are having trouble finding smart places to put it.

Startups like the instant-messaging firm Snapchat, which turned down a buyout offer of nearly $3 billion in November, are remaining independent with hopes of becoming the next Twitter.

"You're starting to hear it: 'It's a new world order.' Apparently the sun is going to rise in the west because of Twitter," said Timothy Connolly, a New York money manager who teaches classes in investment analysis and has posted a steady stream of skeptical tweets about Twitter's stock. "It's absolutely beyond ridiculous."


Twitter, which has triple-digit revenue growth but no profits, is trading at a much higher valuation than proven Internet powerhouses such as Facebook and Google. The company has released no major news or financial information since its initial public offering that would shape investor perceptions.

But that has not stopped exuberance about Twitter's potential to eventually bring in billions of dollars from advertising, coupled with Wall Street's penchant for hopping onto any fast-moving train, from propelling the shares to nosebleed levels.

Even some of the most bullish analysts who declared the stock a buy before it went public at $26 do not understand why anyone would purchase it at current prices.

"I just haven't seen something like this in a long time," said Robert S. Peck of SunTrust Robinson Humphrey, who had set a price target of $50 before the IPO but cut his rating to hold two weeks ago when shares hit $59. "They don't have earnings. They don't have free cash flow."

Mark S. Mahaney, an analyst with RBC Capital Markets, was more sanguine about Twitter's rise and said he was not ready to change his "outperform" rating on the stock, set Dec. 13 when the shares were at about $55. He said that other Internet IPOs, like that of the daily deals site Zulily, have also done well recently and that Twitter's stock is getting a lift from the small number of shares available for eager public investors to buy.

The stock is also trading on the company's potential prospects a few years out. A recent advertiser survey by RBC and Ad Age found Twitter well positioned to benefit from the shift of Internet use to mobile devices and the migration of television advertising budgets to the Internet.


Still, by conventional measures, Twitter's stock is extremely expensive. Shares trade at about 39 times the company's estimated revenue of $1.1 billion in 2014.