Twitter Inc. (TWTR) shares have surged over the past year by 111%, easily outperforming the S&P 500 return of 11.3%, and peers such as Facebook Inc.'s (FB) return of about 18%. Some traders are betting shares of Twitter will fall by mid-June by nearly 20%. The bearish short-term outlook comes in stark contrast to analysts that have been steadily raising their price targets and estimates on the stock over the longer term.
Twitter shares had fallen by about 5% between Monday and Tuesday, despite reporting better-than-expected second-quarter results on Wednesday. The company said earnings that were 40% higher than estimates, coming in at $0.16 per share versus estimates of $0.12, while revenue beat estimates by 9.5% per share at $664.87 million versus estimates of $607.56 million.
Traders were betting that shares of Twitter continue to decline through option expiration on June 15. They have been increasing bets that shares of Twitter fall below $25 by then, as the number of open put contracts at the $25 strike price continues to climb. Those put contracts have nearly tripled since the end of March, to almost 36,000 open contracts from only 13,000. At the cost of $0.45 per contract, it indicates that shares of Twitter would need to fall to $24.55 just to break even, a drop of nearly 20% from its current price around $31.
Analysts have been increasingly becoming more bullish on shares of the stock since the start of the year, steadily raising their price targets. The average price target on the stock today is at $30.61, up nearly 56% just since the beginning of the year. Meanwhile, of the 37 analysts that cover the stock, 24% rate shares a buy or outperform rating, up from only 16%. But still, there are a large number of analysts, 56%, that rate share either a hold, underperform or sell rating.
Estimates for Twitter have also been steadily rising since the beginning of the year as well, with revenue seen rising to $2.891 billion for 2018, up by 13.4% from $2.551 billion. Meanwhile, earnings estimates have also increased by nearly 58%, jumping to $0.71 from just $0.45 per share at the start of the year.
But perhaps part of the reason for the bearish outlook that options trades indicate stems from the stock's high one-year forward P/E ratio of 40.4. Earnings are seen rising by nearly 60% in 2018, but that growth is expected to slow in 2019 to only 22%, and to just 11.3% in 2020.
For now, the analysts are becoming increasingly more bullish, while some options traders are looking for a sharp decline in the short-term. Perhaps the outlook for Twitter's stock merely comes down to a difference in opposing time frames.