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June 13th, 2016 | Read more articles from 2016 or Visit the News Archive
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Originally Appearing at: AO Markets

By: Joshua Rodriguez

Twitter Inc (NYSE: TWTR)

Twitter had an incredibly rough day in the market during Friday’s trading session, and for good reasons. Two big stories hit the struggling social network like a brick. Not only were 32 million user passwords hacked and put up for sale, the company is also facing the ramifications of advertisers choosing to use other networks. This all in a time when the company is already struggling with user growth. Today, we’ll talk about the two big stories, how the market reacted to the news, and what we can expect to see from TWTR moving forward.

32 Million TWTR Passwords Hacked

The first big story surrounds hackers and the dark web. Using malware infected browsers, hackers have stolen 32 million passwords from Twitter users. While the passwords were not stolen directly from the social network, the ramifications of the issue will likely fall back on it.

The hackers stole the passwords by installing key logger malware on Chrome and Firefox browsers. From there, when users signed into the social network, the data was sent back to the hackers. Today, all 32 million stolen passwords are up for sale on the dark web. While TWTR has done its best to notify affected users, we may see user declines as a result of security fears, and that’s the last thing that the company needs at the moment.

Advertisers Are Choosing Other Platforms

For quite a while now, when we’ve talked about TWTR, the brunt of the conversation was focused on the fact that the company simply couldn’t seem to drive new users into the network. However, the saving grace for Twitter was the fact that it had continued to work to improve the experience for advertisers, lifting the revenue from its current user base.

Nonetheless, recent data shows that the one good thing Twitter had going for it is now dissipating. Recently, Comcast’s subsidiary, STRATA ran a survey to see how marketing agencies were spending their advertising dollars. Unfortunately, the survey proved to be concerning for TWTR.

The survey results showed that 96% of advertisers said they would be willing to use Facebook as a source. This was followed by YouTube, with 67% of advertisers saying they would use it. Then came Instagram at 63%. Finally, Twitter came in with 56% of advertisers saying they would use the system.

The survey found that many advertising agencies are shifting their budgets away from Twitter and toward Instagram because of the user growth issue. You see, Instagram has grown to boast about 400 million active users, while Twitter sits around 310 million users. Also, advertising agencies like the fact that Instagram advertising uses Facebook’s targeting system, allowing them to better target their audience.

How The Market Reacted To The News

As investors, one of the first things that we learn is that the news moves the market. Any time positive news is released with regard to a publicly traded company, we can expect to see gains in the value of the stock associated with that company. However, the news that was released with regard to TWTR was anything but positive. As a result, we saw massive declines in the value of the stock during Friday’s trading session. By the end of the session, the stock had fallen by $0.59 per share or 4.01%, to close the day off at $14.02 per share.

What We Can Expect To See Moving Forward

If you follow my analysis here or elsewhere, you know that I’ve maintained a bearish opinion on Twitter for quite some time now. Unfortunately, the company’s leadership seems to lack the fundamental ability to create a plan for growth and stick to it. While advertising was strong in the past, I predicted that it was only a matter of time before advertisers started to shy away from the social network. At this point, it seems like this is exactly what’s happening. At the end of the day, even at the current value, I believe that TWTR is overvalued by more than 30%. So, I’m expecting to see declines in the stock moving forward.

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