Twitter stock could fall 80%: Hedge fund manager

Friday, 22 Nov 2013 | 7:02 AM ET
Twitter could trade 80% lower: Pro
Friday, 22 Nov 2013 | 3:39 AM ET
Pedro De Noronha, managing partner at Noster Capital, says that Twitter could trade 80 percent off its current price as it is not valued on fundamental metrics.

Twitter's stock could fall by up to 80 percent, a hedge fund manager has warned, arguing that the company is not backed by a "sound valuation."

Shares of microblogging website Twitter started trading at $45.10 when it floated on the New York Stock Exchange earlier this month. On Thursday, Twitter shares closed at $42.

But Pedro De Noronha, managing partner at Noster Capital hedge fund, said trading the company's stock was "for punters."

"I don't think there is any serious investor who's really looking at Twitter and thinking, 'I'm going to double my money,'" he said in a television with CNBC. "Maybe one day in the not too distant future we'll be able to buy it at 80 percent off the current level."

(Read more: Cashin: I'm worried about return to dot-com bubbles)

Noronha added that Twitter was not valued on "any fundamental metrics," and compared owning the stock to owning a Porsche.

"A Porsche 911 turbo adds value to you as an owner. But if you pay $2 million for it, it could come down to $100,000 and it still adds value to you - but at $2 million you would have been overpaying for it."

His comments come as the results of a CNBC survey (of 1,750 European executives) revealed that Twitter's reputation appears to be declining.

The latest wave of the survey, carried out in September by Tpoll, found a 61 percent drop in the number of executives who considered Twitter to be trustworthy between 2012 and 2013. Meanwhile, the number of those questioned who thought it was a respected brand slipped 40 percent over the same period.

Mark Ursell, Tpoll's CEO, said the drop could be due to increased social media choice or because companies had become more about "corporate advertising" than connecting with their users.

(Read more: Twitter effect? Expect a barrage of tech IPOs, experts say)

Twitter priced its shares as $26 dollars each when it held its initial public offering (IPO) on November 7. The share price saw a massive spike on the first day of trading, shooting up over 75 percent to top $46.

But George O'Connor, technology analyst at stockbroker Panmure Gordon, stressed that tech valuations were about blending "sentiment and fundamentals," adding that Twitter's valuation had to be taken in context.

"It is a huge landscape and like any landscape it has peaks and troughs. When you look at Twitter's fundamentals it looks very expensive. It is off the clock in relation to the broader technology companies. But in that broader tech space you have companies going into reverse," he told CNBC in a phone interview.

—By CNBC's Arjun Kharpal: Follow him on Twitter @ArjunKharpal


Contact Technology


    Get the best of CNBC in your inbox

    › Learn More
  • Matt Hunter is the senior technology editor at CNBC.com.

  • Cadie Thompson is a tech reporter for the Enterprise Team for CNBC.com.

  • Working from Los Angeles, Boorstin is CNBC's media and entertainment reporter and editor of CNBC.com's Media Money section.

  • Jon Fortt is an on-air editor. He covers the companies, start-ups, and trends that are driving innovation in the industry.

  • Lipton is CNBC's technology correspondent, working from CNBC's Silicon Valley bureau.

  • Mark is CNBC's Silicon Valley/San Francisco Bureau Chief covering technology and digital media.