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This could be a big problem for Twitter

Talking Numbers

This could be a big problem for Twitter

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This could be a big problem for Twitter

This could be a big problem for Twitter
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This is the time many Twitter employees have been looking forward to.

The lockup period for nearly 10 million Twitter shares owned by employees is set to expire this weekend, meaning the total amount of tradable shares will increase 12% to 90 million. That's nothing compared to the 474.7 million Twitter shares that will be available for sale in May.

Nonetheless, 90 million shares potentially hitting the market at the same time is no small affair for a stock with an average daily volume 21 million.

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According to John Stephenson, portfolio manager at First Asset Investment Management, Twitter shareholders should use this as an excuse to bail of their shares.

"I think it's a great opportunity to get off your position," says Stephenson. "I think Twitter's going down."
Although the company's earnings for its first reported quarter in December 2013 were positive where analysts had expected a loss, Stephenson says users are a key problem for Twitter.

"Four out of five Americans who are connected to the Internet don' t log on and use Twitter on a frequent basis," says Stephenson, who contrasts that with Facebook's hold of 50% of the US online population.

"The problem is many people just don’t get it and they don't know how to use it," says Stephenson. "So, I think ultimately the fair valuation is $35, not $57 [per share]."

(See: CNBC's Social Media coverage)

Steven Pytlar, Chief Equity Strategist at Prime Executions, is also bearish on the Twitter bird based on the stock's technicals. 

"When we look at the charts, one of the things we always try to do is check out how stocks react to big events," says Pytlar. "In Twitter's case, the recent earnings reaction was very poor. It shows that people are looking to sell the stock. They're not enthused by what they're hearing from the company."

Pytlar is concerned with how the stock reacted after its post-IPO rally. "We're seeing lower highs," says Pytlar. "That just tells us that Twitter is in a distribution phase where more people are looking to sell it than buy it."

According to Pytlar, the stock is currently hitting a resistance level of $57 per share. But, the stock may go lower.  "It can fade back down, probably go retest that post-earnings low again maybe around the $50 level in the pretty-near term," he says. But, if that level doesn’t hold, it could be "in a lot of trouble and we could maybe see John [Stephenson]'s target down to $35."

To see the rest of the discussion on Twitter with Stephenson on the fundamentals and Pytlar on the technicals, watch the video above.

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