Twitter Inc. fell the most since its second day of trading after Wunderlich Securities Inc. initiated coverage with a sell rating, citing concerns that user growth may be limited compared with rival social networks.
The shares of the San Francisco-based company, whose online service lets users post 140-character messages, fell 6.5 percent to $41.14 at the close in New York, the steepest decline since Nov. 8. A quarter of analysts covering Twitter now rate the stock a sell, and less than half recommend buying it, according to data compiled by Bloomberg.
Twitter has come under pressure as analysts question whether the company can deliver strong enough growth to justify its stock price, which rose more than 70 percent on Nov. 7, the first day of trading after an initial public offering. Twitter doesn’t have the same potential to expand its user base as rivals Facebook Inc. and LinkedIn Corp., Blake Harper, an analyst at Wunderlich Securities, wrote in a note today.
“We believe the engaged community has also created a barrier for attracting new users who may not yet understand how Twitter works,” he wrote. “The company must better simplify and customize its product to reach new users in the mass market to justify its current growth projections.”
On Nov. 16, a story in Barron’s said social-media stocks, including Twitter and LinkedIn, may be overvalued.
Twitter, which sold shares for $26 apiece at its IPO this month, is up 58 percent since the market debut.
Facebook, owner of the world’s largest social-networking service, which went public at $38 a share, has advanced 21 percent since its May 2012 IPO. The shares declined 6.5 percent to $45.83 today are are down 15 percent since reaching a record on Oct. 18. LinkedIn slipped 3.9 percent to $222.07.
Menlo Park, California-based Facebook spurred concerns about growth last month after it said usage among some teens declined during the third quarter. The company also said it would limit space for expanding advertising, its main source of revenue, as it tries to keep parts of its service from being overrun with promotions.
Facebook, which held its market debut last year, remains much larger than Twitter. While Facebook has more than 1 billion users, Twitter has less than 250 million. Its market value is about $114 billion, compared with about $23 billion for Twitter.
Wunderlich’s Harper has outperformed his peers the last few months, data compiled by Bloomberg show. He recommended buying TripAdvisor Inc. on June 13. The stock climbed 36 percent since then, almost four times the Standard & Poor’s 500 Index. He switched his rating on Yelp Inc. to buy from hold on Aug. 1. Shares have climbed 25 percent since, compared with a 5 percent rally in the S&P 500.
Even with Twitter’s challenges, Harper said the company has potential to boost annual revenue by an average 49 percent for the next three years, citing its effective targeting platform for advertisers and its ties to television programming. The service is popular on mobile devices, where consumers are increasingly accessing digital content, and may attract 4 percent of total advertising spending for smartphones and tablets, he wrote.
“The service is inherently well-suited for mobile devices, with the short length of tweets ideal for smaller screen sizes,” Harper said.