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I'm not an expert in the stock market, and the only stock I own is Facebook (which I bought a long time ago), but I am confused as to why Facebook is dropping t

I'm not an expert in the stock market, and the only stock I own is Facebook (which I bought a long time ago), but I am confused as to why Facebook is dropping today while there is so much enthusiasm for Twitter. Buying Twitter is basically betting on mobile advertising, which Facebook is the clear leader of. Is it possibly related to people with Facebook stock selling some to get in on Twitter? Are they entirely unrelated?

darrelld 13y ago
Not an expert either, but my guess? Facebook had its IPO hayday and Facebook is now another company listed on the market. Markets are mostly down today and Facebook is following the trend. Twitter is a hot new IPO and people are jumping on early in the hopes of it rising in price.
- the_watcher 13y ago
  Got it. As someone who only owns one stock, I guess I don't look at the market as a whole enough. That makes more sense than anything else.
  - morgante 13y ago
    I also highly suggest you own more than one stock.
omellet 13y ago
People are dumping shares of hot stocks like FB and Netflix to free up capital to buy Twitter.
3327 13y ago
I am an expert on stocks, (Wallstreet HF PM for many years), quick explanation is money moving from FB to TWTR. seeing the momentum funds sell FB and put into TWTR as they are correlated plays.
kirpekar 13y ago
On a day-to-day basis, the stock market is a random walk. There is no way to know WHY Facebook is dropping and Twitter is rising. If somebody knew, he or she would have been billionaire many times over.
twistedpair 13y ago
A typical P/E ratio is around 13. Take Apple, smack on 13. If it is too high, you're spending too much. No official numbers for Twitter's profits, all guesses, but a suggested $116M profit this year gives a current P/E of 207. That means it would take 207 years, ignoring inflation (which would make it much worse) for the company to actually pay its investors/owners back the price of the company. This is why people are suggesting going short. It is clearly over valued. The $26 initial valuation was more reasonable, if you assume the market information is wrong, and that Twitter will generate a far higher profit in the future. Your valuation is a bet on the market being wrong and Twitter's mobile potential being stellar.
- fennecfoxen 13y ago
  A P/E of 207 could also be expressed as 1/207 = 0.48% rate of return on your investment. That's easier to compare to inflation, and to your bank account. :P Of course, your bank account doesn't have much opportunity to grow its business, and Twitter doesn't have FDIC insurance. More generally, the value of a company is the sum of all its anticipated profits for all time... discounted for inflation, risk, and the time value of money. (The first two of those discounts are obvious; the "time value of money" is just the fact that it's better to have $50 now than an inflation-adjusted $50 in 30 years because you could do something with the money now, like invest in other companies or invest in bonds or invest in re-insulating your basement to save on heating.)
- bcoates 13y ago
  The P/E doesn't mean it's overvalued, it means it's priced assuming substantial growth in earnings. That doesn't make either the forward-looking market price or the backwards-looking profit numbers wrong. If that growth is unlikely to happen, then it's overvalued. If Twitter becomes quadruple-Facebook and is earning $2.5 billion/year in a few years, it's very undervalued.
pa5tabear 13y ago
Shouldn't we expect that success for one means loss for the other? Their services have significant overlap, and the social/mobile advertising market is finite.

darrelld 13y ago

Not an expert either, but my guess? Facebook had its IPO hayday and Facebook is now another company listed on the market. Markets are mostly down today and Facebook is following the trend. Twitter is a hot new IPO and people are jumping on early in the hopes of it rising in price.

the_watcher 13y ago
Got it. As someone who only owns one stock, I guess I don't look at the market as a whole enough. That makes more sense than anything else.
- morgante 13y ago
  I also highly suggest you own more than one stock.

omellet 13y ago

People are dumping shares of hot stocks like FB and Netflix to free up capital to buy Twitter.

3327 13y ago

I am an expert on stocks, (Wallstreet HF PM for many years), quick explanation is money moving from FB to TWTR. seeing the momentum funds sell FB and put into TWTR as they are correlated plays.

kirpekar 13y ago

On a day-to-day basis, the stock market is a random walk. There is no way to know WHY Facebook is dropping and Twitter is rising. If somebody knew, he or she would have been billionaire many times over.

twistedpair 13y ago

A typical P/E ratio is around 13. Take Apple, smack on 13. If it is too high, you're spending too much. No official numbers for Twitter's profits, all guesses, but a suggested $116M profit this year gives a current P/E of 207. That means it would take 207 years, ignoring inflation (which would make it much worse) for the company to actually pay its investors/owners back the price of the company. This is why people are suggesting going short. It is clearly over valued. The $26 initial valuation was more reasonable, if you assume the market information is wrong, and that Twitter will generate a far higher profit in the future. Your valuation is a bet on the market being wrong and Twitter's mobile potential being stellar.

fennecfoxen 13y ago
A P/E of 207 could also be expressed as 1/207 = 0.48% rate of return on your investment. That's easier to compare to inflation, and to your bank account. :P Of course, your bank account doesn't have much opportunity to grow its business, and Twitter doesn't have FDIC insurance. More generally, the value of a company is the sum of all its anticipated profits for all time... discounted for inflation, risk, and the time value of money. (The first two of those discounts are obvious; the "time value of money" is just the fact that it's better to have $50 now than an inflation-adjusted $50 in 30 years because you could do something with the money now, like invest in other companies or invest in bonds or invest in re-insulating your basement to save on heating.)
bcoates 13y ago
The P/E doesn't mean it's overvalued, it means it's priced assuming substantial growth in earnings. That doesn't make either the forward-looking market price or the backwards-looking profit numbers wrong. If that growth is unlikely to happen, then it's overvalued. If Twitter becomes quadruple-Facebook and is earning $2.5 billion/year in a few years, it's very undervalued.

pa5tabear 13y ago

Shouldn't we expect that success for one means loss for the other? Their services have significant overlap, and the social/mobile advertising market is finite.