Tuesday, December 10, 2013

TWTR Sparks Momos

The horses change, but with stock bulls looking for the next quick buck, are coming back to social media stocks.  It seems absurd for TWTR to be valued at $30B, with no profits, and with miniscule revenues.  But the stock market is about supply and demand.  TWTR is a recent IPO and the float is small, so you have limited amounts of stock available.  Also, TWTR is the one that has the most growth potential, which is what these momo traders want.  They don't care so much about profits as about growth rates.  It is much faster to grow a company when the revenues are tiny compared to relatively big revenues of a FB.

I am a long term bear on all these social media stocks, they all depend on advertising, and most advertising on the internet isn't effective, and has limited growth potential.  But I see a miniature version of the TSLA explosion higher (during May-August) in TWTR just because of the tight float, huge growth potential, and large number of skeptics shorting the stock.

As for the market overall, I am continuing to see a lagging Europe, despite the continuous inflows.  The supply and demand dynamics are getting much less favorable now for worldwide equities.  The higher valuations are bringing out more IPOs and secondaries, and attracting more hot money that will be just as quick to leave later.  For the rest of the year, I don't see much selling just because of the nature of the stock market up a lot in December.  The reluctance to sell stock because of tax reasons keeps the supply of stock for sale limited.  But, after that, it should be an interesting January/February 2014.  I expect heightened volatility as the supply demand dynamics of a saturated market take over.

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