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FB, TWTR Shares Under Pressure

When shares in Facebook reached their post-IPO low of $17.55 in September of 2012, the stock touched a price-to-sales (P/S) low of roughly 6.0. But its loss of face was more than made up for by its subsequent 230% rally in the 20 months since, leaving FB stock trading at $57.50 today, or at approximately 15.5 times sales (calculated on a trailing twelve month basis).

Consider however, that in contrast, shares in Twitter, which traded up to a lofty P/S ratio in excess of 74x following its IPO in November, today trade at a P/S ratio of around 18x. TWTR shares, which today trade down roughly 3.0% at $31.00 as of the time of this writing, have dropped nearly 60% from a post-IPO high of $74.73. Using the current TTM sales per share for Twitter of $1.67, consider a hypothetical situation in which shares of Twitter continue to drop and reach a P/S ratio as low as that experienced by Facebook in September of 2012. Under those conditions, shares in Twitter would find a bottom at approximately $10.00, or nearly 70% below the current level.

Of course, the key word above was “hypothetical.” No telling what is in store for Twitter or Facebook, though both stocks are under pressure again today. Shares in Twitter found favor after its IPO but now face potential competition from perhaps the world’s largest IPO by Alibaba, which conceivably runs the risk of crowding out some Internet names should tech investors sell the old to buy the new.  


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