Another week, another Twitter acquisition rumor – and another spike in the company’s stock.
The latest rumor came through the reputable Silicon Valley trade publication the Information, which claimed that Marc Andreessen, billionaire venture capitalist and active tweeter, would be buying Twitter along with the private equity group Silverlake. Twitter’s stock inflated by 6.5%, and then within a few days fell back even lower.
In October 2015, former Microsoft CEO Steve Ballmer tweeted that he had bought some Twitter stock – which went viral on Twitter and prompted stock to rise 4.9%. A week later it was back to the same price.
In July 2014, someone created a fake website with false Twitter information that looked to be a Bloomberg site – it went viral and led the stock price to increase by 7.6% before falling back again. The SEC said it would be investigating.
On social media share-price rumors, especially when tech investors are so happy to retweet them, can drive the market no matter how tenuously sourced they are. (See how Weight Watchers stock is driven by what Oprah tweets about her weight.)
Twitter, whose stock is hitting new lows and increasingly looks like an acquisition target, could now be seeing itself jostled by investors toying with stocks, hoping for a pop so they can sell before it drops further. The aforementioned acquisitions rumors, both of which went viral, were also unfounded: News Corp’s Rupert Murdoch denied he has any interest in buying Twitter, and Marc Andreessen, through a representative, emphatically did the same.
So are people spreading these rumors just to goad the day traders and boost the stock?
“It happens. People want to get rich quick with as little work as possible. And the network effect is absolutely phenomenal with something like Twitter,” said Jason Moser, an analyst at Motley Fool who runs a fund that invests in Twitter.
He suspects Twitter’s rollercoaster is probably less shady intent on the part of investors and more about the twitchy nature of the viral news-driven day trading world. “You look at Twitter today, and you look at the volume, closing in on three times as much as normal, that’s people back and forth day trading any little thing they can to make a buck.”
Moser scoffed at the Andreessen acquisition rumors and then suggested that the investors seeding these rumors are questionable, even legally tenuous. “Anyone who follows the markets and sees people’s social media presence can put two and two together. Twitter is very investor friendly – a lot of investors use it on a daily basis. It doesn’t take much for someone to spread the rumors. The SEC, which regulates the US stock market, has a much different job than it used to,” he said. “I would not want to be stuck on the end of someone investigating.”
The Securities and Exchange Commission (SEC) has been involved with social media before. The Netflix CEO, Reed Hastings, posted enthusiastic financial results on his Facebook ahead of the company’s earnings call in 2013, prompting Netflix stock to spike. The SEC investigated but found him in the clear, publishing a report that it was OK to put out press releases on social media.
Justin Paterno is president of StockTwits, which encourages trading based on the social media sentiment around different companies. Paterno described StockTwits as simply speeding up an old game.
“You used to have hedge fund managers go on CNBC. Now the investors are tweeting. It’s not different, it’s just faster,” said Paterno, whose service has grown 60% this year, especially among people under 45 who account for 60% of its user base.
He described his demographic thus: “The same people who get their news through Facebook are getting their market news through StockTwits.”
Access to tweeted information is ultimately good for the average investor, Paterno argues. “It’s similar to the trading floors of Goldman Sachs – now what we provide is everyone’s own virtual trading floor.”
He switches metaphors: “You go to a party, and there’s someone you trust, and you get a stock tip from them. For most people who don’t understand how to read one of these complicated financial statements, that tip is a much better way to trade. You give yourself too many tools, you could hang yourself.”
For the unsophisticated investor, he says, sometimes it’s best to go on feeling rather than a bunch of complicated facts. “A lot of people get hung up on certain data points, like PE ratio,” he said, referring to the metric treated as a sort of gold standard in judging whether a stock is trading close to its true value or not. “Any growth-stock PE is not going to give you the full picture.”
So what does Paterno – the man behind the twitchiest stock-playing game on the internet – think should be done with Twitter?
Surprisingly, he believes it should have remained private.
“I like the idea of a private Twitter,” he said. “They need to take a few more chances on the product without Wall Street demands, which sometimes don’t make sense.”
The SEC did not return multiple requests for comment.
This article was written by Nellie Bowles in San Francisco, for theguardian.com on Wednesday 3rd February 2016 18.20 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010