Beverly Hills, CA -- (SBWIRE) -- 01/03/2014 -- According to Peter Tasca, CEO of Laureate BVI, “the growth of revenue for Twitter has been on a significant rise. In the last three years revenue has risen from $28 million to over 400 million through the third quarter of 2013. The area of concern for our clients is that the significant growth of revenue has also caused significant losses.”
When Twitter (TWTR) launched the IPO shares were priced at $26 per share giving it a market value of $17 billion, that market value has more than doubled in last 30 days. Twitter has raised more money than Amazon (AMZN), Microsoft (MSFT), eBay (EBAY), Apple (AAPL) and Google (GOOG).
According to CEO Peter Tasca of Laureate,” Twitter (TWTR) is breaking out due to shorting by traders who have to cover their positions by close of trade.” There is absolutely no justification to pay 300 times EBITA, and the price does not reflect the enterprise value of TWTR.
As short sellers are increasingly betting Twitter’s (TWTR) huge run-up is not sustainable it creates a shortage in stock available to borrow.
Short sellers must borrow shares to sell them in hopes of buying them back cheaper at a later date, thus profiting from the price decline. Twitter does not have a lot of stock to borrow so traders find themselves shorting the stock at the open and then scrambling to cover the position and pushing the stock even higher by the close of the trading day causing a “short squeeze” according to Tasca.
Twitter continues to rally even as Wall Street analysts continue to downgrade the stock. Analysts at Wells Fargo Securities, Sun Trust Robinson Humphrey and Macquarie Capital have all cut their rating citing valuation issues.
Laureate reports that the demand to borrow Twitter to short is very strong. The trading data shows that over 70% of the shares that can be borrowed from lending programs are loaned out. “It is very difficult to find shares to short” according to Tasca.
According to Tasca of Laureate BVI which has returned 23% in net profits for 2013, “we rate this stock a sell due to valuations, we do not recommend any shorting at this time due to the limited supply of stock and the substantial risk.”
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