Twitter TWTR shares fell 12% to close at $28.07 on Mar 27, after Citron Research announced that it’s taking a short position on the stock.
Per Bloomberg, Citron believes that increasing contribution from data licensing business makes Twitter vulnerable to any “potential privacy regulation” following social media giant Facebook’s FB data leak debacle.
In the last reported quarter, data licensing & other revenues grew 10% on a year-over-year basis and accounted for almost 12% of Twitter’s total revenues.
Although Twitter has stated that its data business doesn’t sell direct messages (DMs), contrary to Citron’s report, the share price plunge reflected investor scepticism, which was primarily fuelled by lack of trust.
Twitter shares were down 1.7% in pre-market trading.
Loss of Trust Hurts Social Media Stocks
Since the 2016 U.S. Presidential elections, Twitter, Facebook and Alphabet's GOOGL Google have faced severe flak for spreading fake news that allegedly influenced election results.
Facebook now has been charged of letting U.K.-based political consulting firm, Cambridge Analytica, appointed for Trump’s presidential campaign, access data of 50 million users without their permission.
The recent incident has grabbed the attention of government regulators globally. Rising demand for privacy protection has put pressure on regulators to scrutinize data collection, storage and access policies of these platform providers.
Moreover, notable corporate personalities like Apple CEO Tim Cook have urged for immediate regulations to govern social media platforms and address data privacy concerns. We believe that proper regulations will boost trustworthiness over the long haul.
Twitter Still the Ace Performer
Twitter shares have returned 86.6% in the past year, significantly outperforming the 30.7% rally of the industry it belongs to. In comparison, Facebook has gained 6.7%, while Snapchat parent Snap SNAP has lost 28.1%.
The outperformance can be attributed to Twitter’s initiatives to improve brand image and create a “safer environment.” The company has made advertisements more transparent by providing users more detailed information about political issues.
Apart from curbing content that promotes violence, hatred and harassment on the platform, the company recently banned cryptocurrency ads, joining the ranks of Facebook and Google.
The revised ad policy will definitely help in preventing large investor losses and boosting user as well as advertiser confidence in the long term.
Twitter has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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