Twitter tanks 24%, loses $8.7 billion market cap
Shares of Twitter dropped about 24 percent Thursday—a paper loss of $8.7 billion—after it reported sluggish user growth. The selloff was a sign that the social network will have a tough time regaining its stature with advertisers, at least until it releases better numbers, a senior tech analyst told CNBC.
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"To us, when you're talking about opportunities relative to communicating with advertisers, you want to lead with a large and growing and increasingly engaged user base," Scott Kessler of S&P Capital IQ told "Squawk on the Street." "And Twitter doesn't seem to have the data to support that proposition."
Twitter closed Wednesday's trading session at $65.97 a share before posting earnings after the bell, the first quarterly report since it went public in November. Shares reached a low of $50 during trading Thursday, on pace for Twitter's worst day on record. The formerly red-hot stock had zero room for error, said Colin Sebastian, a senior research analyst at Robert W. Baird & Co.
Despite a rocky trading session Thursday, Twitter's stock remained up 99 percent from its IPO price of $26 a share.
"The stock was priced for perfection—the underlying metrics really do matter in that scenario," Sebastian said. "The spotlight is back on user growth, and the stock will be in the penalty box until we get a better read on whether their initiatives are having any impact."
Sebastian, who holds a neutral rating on Twitter stock, said he would consider buying shares if they drop into the mid-$40 range.
Kessler said he has held a sell rating on Twitter for the past few months, based largely on concerns about user engagement.
During a later interview on "Squawk on the Street," Cowen & Co.'s John Blackledge said Twitter seems to have less powerful "network effects" than other social media companies, such as Facebook, LinkedIn and Instagram. For example, he said, photo-sharing network Instagram added twice as many users as Twitter between the second and fourth quarters of 2013.
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Twitter "got a lot of promotion around their successful IPO in the fourth quarter," Blackledge said. "A lot of people thought that would help user growth and engagement. Clearly it didn't."
Eric Jackson has an idea where Web users are heading instead of Twitter—and it's far away from the public forum that the micro-blogging platform has helped cultivate. Jackson, the founder of Ironfire Capital, believes private-messaging platforms such as WhatsApp are drawing users away from established social networks such as Twitter.
"That's something to watch for a potential threat to Facebook in the quarters ahead, as well," Jackson said during a later appearance on "Squawk on the Street." "It is really surprising how the new user growth is coming from these private networks."
—By CNBC's Jeff Morganteen. Follow him on Twitter at @jmorganteen and get the latest stories from "Squawk on the Street." CNBC's Giovanny Moreano contributed to this report.