Twitter Inc. plunged to a record low Tuesday after lifting restrictions on share sales by insiders and early investors, renewing concerns that Internet stocks are overvalued and sparking a selloff in social-media companies.
The stock slumped 18 percent to close at $31.85 as about 480 million shares from insiders became eligible for sale, more than quadrupling the current amount available for trading. The shares declined even as early investors Chris Sacca and Rizvi Traverse Management LLC pledged not to sell, declaring confidence in the San Francisco-based company. CEO Dick Costolo and co-founders Evan Williams and Jack Dorsey also said they are hanging onto their stock.
Twitter’s shares have slipped this year after reports of slowing user growth, raising concern that the service may not be able to add more mainstream members. Still, the company trades at a level that makes it more expensive than Facebook or LinkedIn, based on projected 2014 sales. The stock has gained 23 percent from its $26 IPO price in November.
“The lockup is the straw that broke the camel’s back,” said Daniel Ernst, an analyst at Hudson Square Research in New York. “If Twitter’s growth was still good, if the company didn’t have such a high valuation, if its margins were better, we wouldn’t have today’s stock situation.”
Twitter’s decline Tuesday was the biggest drop compared with lockup expirations from Facebook, LinkedIn, Groupon, Pandora Media and Google since 2004, according to data from Bespoke Investment Group LLC.
The company said last week that its monthly active users in the first quarter reached 255 million, with year-over-year growth decelerating to 25 percent.