According to securities filings, the founder of Twitter Inc (TWTR), Evan Williams, has sold 1.85 million shares, for a total value of about $47 million.
Such an event usually raises concerns, especially when the stock has already come down fairly hard. But in the case of Twitter stock, the insider sale probably won’t mean much. After all, the company has much more important issues to consider.
First of all, Evan Williams still holds close to 7% of Twitter stock, which is worth roughly $1 billion. In other words, the recent sale is really a drop in the bucket compared to Williams’ overall stake.
Besides, the money Williams raised from selling Twitter stock was given to the Sara & Evan Williams Foundation. And yes, as seen with this week’s announcement from Facebook’s (FB) Mark Zuckerberg to give away 99% of his FB shares, there is certainly a trend in Silicon Valley to focus on philanthropy.
Insider sales are also common for newly public companies. After all, employees and founders usually take lower salaries in exchange for stock options. And it generally takes a long time for a company to go public, which means delaying any moves for getting liquidity.
Twitter Stock Still Struggling
Of course, none of this is to say that Twitter stock is doing fine. The company continues to face major challenges, all of which are causes for ongoing concern.
For example, Twitter stock has suffered extensively due to a brutally competitive environment. Consider that Facebook is investing heavily in TWTR-type features, such as Instant Articles and new apps like Notifications. Of course, Instagram is also is gaining lots of ground. In fact, the service now has more than 400 million users, compared to 320 million for TWTR.
The fact is that advertisers would prefer to focus their budgets on platforms that have massive scale and rich opportunities for targeting. That’s why Facebook and Alphabet (GOOG, GOOGL) continue to get outsized shares of the ad dollar pie.
None of this would be an issue, of course, if TWTR could find ways to boost its user numbers. But nothing seems to work. On a year-over-year basis, TWTR’s active users only grew by 8%. Neither the major distribution agreement with Alphabet or the launch of a new feature, called Moments, was enough to reinvigorate user growth.
Interestingly enough, other large Internet properties are posting much stronger numbers. During the past year, FB reported a 14% increase and LinkedIn (LNKD) grew its base by about 20%.
Twitter is generally considered to be puzzling for people who don’t understand jargon like retweets and hashtags. Granted, reinstated CEO and co-founder Jack Dorsey, has a knack for building highly engaging mobile apps and appears to be focused on the product right now. However, he’s currently splitting his time between running TWTR and acting as the CEO of Square (SQ).
So with a flagging user growth rate, it is tough to make a bullish case for Twitter stock. Even the company’s CFO, Anthony Noto, has been glum. During the Q2 earnings call, he noted: “We do not expect to see sustained meaningful growth in MAU until we start to reach the mass market. We expect that will take a considerable amount of time.”
Meanwhile, TWTR stock’s valuation remains far from cheap, with a forward price-to-earnings ratio of about 45. FB, on the other hand only trades at 37 times forward earnings, and Alphabet sports a multiple of 33. More importantly, these companies continue to outperform TWTR, and there just aren’t any signs that things will change in the near future.
So, while owners of Twitter stock shouldn’t panic over Evan Williams’ sale, they have plenty of other things to worry about.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
