How One Tweet Wiped $8bn Off Twitter's Value

An anonymous reader writes: Someone mistakenly published earnings information on a Nasdaq-run investor relations page for Twitter before the company officially released the news and it sent the stock into a tailspin. Initially the earnings statement went unnoticed, but soon a Tweet with the results got a lot of attention. The stock lost more than $8 billion at one point as news spread. "We asked the New York Stock Exchange to halt trading once we discovered our Q1 numbers were out, and we published our results as soon as possible thereafter," said Twitter's senior director for investor relations, Krista Bessinger. "Selerity, who provided the initial tweets with our results, informed us that earnings release was available on our Investor Relations site before the close of market. Nasdaq hosts and manages our IR website, and we explicitly instructed them not to release our results until after the market close and only upon our specific instructions, which is consistent with prior quarters. We are continuing to investigate with them exactly what occurred."

Comments

The real question here

[Anonymous Coward]

How is something as useless and stupid as Twitter be worth more than $8bn in the first place?

Re:The real question here

[qeveren]

Value is entirely based on perception.

Re:The real question here

[MobileTatsu-NJG]

How is something as useless and stupid as Twitter be worth more than $8bn in the first place?

Maybe it's not as stupid as useless as you think. Why wouldn't real-time stats on what people on the internet are talking about be worth some major buckage?

Re:The real question here

[pushing-robot]

Twitter is RSS feeds, centralized and simplified. It works well for a lot of people.

If it's stupid and it works, it's not stupid.

Re:The real question here

[Dutch Gun]

True, but perception can be misleading. At one point in the late eighties the paper value of the real estate of the Tokyo Imperial Palace alone was perceived to be worth more than the entire land mass of California. Tokyo real estate prices peaked at about 350 times that of choice Manhattan real estate at the time. The bubble burst when, among other reasons, people realized although such was the value on paper, no one could actually sell at that price and receive anything near the current "market value".

Re:The real question here

[bluefoxlucid]

people realized although such was the value on paper, no one could actually sell at that price and receive anything near the current "market value".

I keep telling people we need our high-interest-rate market back because it'll force home prices down. Home prices go up when interest rates go down, because people are still buying the same houses for $1200/mo; the difference is whether it's a $120k house or a $350k house that you're paying $450k for. Also, with high interest rates, putting an extra $20 on your mortgage cuts off tens of thousands of dollars from the total cost; with low interest rates, you need to take heroic efforts, like tripling your payments, to save any real money.

They tell me that people just won't be able to afford houses, and that the prices won't come back down. Houses will just go unsold, forever.

Re:The real question here

[AuMatar]

The extra $20 is a broken window fallacy. Paying off 20 dollars of debt pays off 20 dollars of debt. They'd only be saving far more in the high interest case because they'd be paying far more. Either way they're losing money by paying higher interest rates.

Same with your overall interest rates. In the end, people have $X per month to spend on housing. They can't exceed that. No matter what they pay $Y in principle per month and $Z in interest per month. All that changes is the relative ratio of Y and Z. High Z, low Y and the money goes to the banks. Low Z, high Y and the money goes to the property owners. Of the two I know which I prefer.

Re:The real question here

[Paradise Pete]

Not if you subscribe to the entirety of his post, which included prices falling due to higher buying costs, resulting in paying the same total amount, but with more of it going to interest. That makes it a better way to make use of an extra $20. That's his idea. I'm not endorsing it, but that's what he's saying, so no broken window fallacy.

Re:The real question here

[magarity]

At the beginning of a mortgage, depending on the interest rate maybe $19.99 or $18.00 of each $20 payment may be towards interest instead of the base debt. When interest rates are lower, more of the payment is toward the debt, which builds the payer's equity. Your payment (unlikely to be the same under different rates since the higher interest rate needs a higher payment to work out over the same term) under different interest rates goes towards interest or equity at different rates and that's not a broken-window fallacy comparison. The money you pay for interest is lost to time; what you pay towards equity is an important form of savings.

Re: The real question here

[Penguinisto]

The reason why is because there are two ways to buy/sell stock.

The original intent was to own a piece of the company via buying stock, investing in its long-term growth, and reaping the benefits by selling it at some indeterminate point in the future.

The modern method (via shorting and similar tricks) is gambling.

Problem is, in order to eliminate the gambling aspect, the SEC would have to require a minimum 1-2 year holding period between sales of a given share of stock... that is, you buy the stock, but you cannot sell it to anyone else until it has been in your possession for at least 12-24 months or so. Good luck having that happen. :/

Re:The real question here

[msauve]

That's only correct if you believe that the $120K house he mentions now costs $350K because of lower interest rates. I submit that is not the case. House prices may rise with lower interest rates and increased affordability, but not nearly that much. The example buyer is getting much more for their monthly payment with lower interest rates.

Re:The real question here

[msauve]

But $577,820,000 in 2014 losses (and they've never made a profit)? Sell at a loss, and make it up in volume?

Believe it or not, but some companies actually make a profit on their revenue.

Re:The real question here

[drinkypoo]

Home prices are high because banks refuse to sell them. They'd rather they rot, become inhabited by squatters, get stripped of their fixtures, and finally burned down by someone in the neighborhood who feels that a smoking crater would be more valuable to it than a crack house.

Re:The real question here

[mattack2]

She should have been happy. There's typically no reason to want your property to increase in value unless you plan to sell it. It just increases your property taxes.

The post you're replying to was in Silicon Valley, obviously in CA. So the property tax is (mostly) based on the purchase price + some small growth allowed each year. That was due to Prop 13. So just because the value goes up, doesn't make the property tax go up... unless something happens to cause it to get reassessed (I think major improvements to the house can do this). But simply living in it doesn't.

(Some transfers, e.g. between some family members, don't cause reassessed value too..)

Re:The real question here

[bluefoxlucid]

In one scenario, you're paying $980 of interest and $20 of principle on your first like 50 payments (not exactly accurate: you're accruing $980 of interest, then paying $1000, moving your balance down by a net of $20). Paying $20 extra bypasses $980 of accrued interest in the end, saving you money.

In another scenario (low interest rate), you're still paying $1000/mo for 360 months; but even the earlier payments are like $850 of principle and $150 of interest. Whereas each $20 will save you $980 off the total cost of the house, you have to put down $5553 extra on each of those early payments to save $980.

With a lower interest rate, the sale price is higher: since much of the cost of the loan is not interest, you can't dismiss it by prepayment. Whereas $120k of sale price and $330k of interest can be reduced to $220k in total (saving $230k) by adding an extra $300/mo, low-interest rate markets turn this into $330k of sale price and $120k of interest, while requiring heroic efforts (extra $5000/mo) to shave off half your interest, in the end reducing only to $390k (savings: $60k).

You're better able to reduce the total cost to yourself with minimal additional capital investment when interest rates are high and loan terms are long. The natural inflation (increase in salary) or your ability to manage your finances will provide you with additional money over time, allowing you to increase your loan payment; with high interest rates, small increases in prepayment become huge savings off the total loan cost.

It wasn't the tweet

[Snowgen]

It wasn't the tweet that caused the sell off, it was the poor Q1 numbers.

Re:It wasn't the tweet

[Fwipp]

The idea that releasing the Q1 earnings after-hours allows people to make better judgments - they don't think "shit I have to sell all my stock RIGHT NOW", because they have a bit to think about it before the morning. Otherwise, you get a runaway effect, with some people selling early, people noticing the stock price dropping, and it starts crashing as more and more people try to sell before it "craters."

In theory, more time to react will smooth out your responses and make things less scary.

Re:It wasn't the tweet

[netsavior]

It wasn't the tweet that caused the sell off, it was the poor Q1 numbers.

Well sort-of. The thing is wall street speculation is now highly automated. If a stock starts to slip before the numbers are supposed to be released, all the algorithms start to throw off warning bells and cause a sell-off run much more efficiently than humans reading twitter ever could.

If stock slips during an earnings announcement, it is expected, and bots don't emulate panic... if it happens BEFORE earnings announcements, bots latch on to the pattern in what is essentially insider trading, but with plausible deniability.

Re:It wasn't the tweet

[Frobnicator]

The thing is wall street speculation is now highly automated. ... and cause a sell-off run much more efficiently than humans reading twitter ever could.

This is exactly what triggered it. The page was up for forty five seconds. 45 seconds is not enough for humans to read and understand it, but that is plenty of time for bots.

During that 45 seconds, assorted stock-trading bots picked up on it, scanned it, and sold over 3M units, or $153M, of their stock. That's over 30x their normal trading levels.

The huge uptick in stock sales triggered another bunch of automated trades, and over the next 18 minutes they had more trades than they had seen all quarter -- the last trade spike that big was after their last earnings report, when the price jumped from about $37/share to around $50/share.

Then, about 18 minutes after the brief posting, trading stopped because of the anomaly. It is normally an effective tactic when trading bots go crazy.

20 minutes later trading was resumed for the remaining half hour of the day. There were over two million trades per minute over that half hour, and the stock price continued dropping from $51.24 to $42.27, with a slow but steady drop today down to $38.49. Days like this make me laugh at stupid investors. No point in selling now, the value is already lost. It is unlikely another bombshell will be dropped. Selling just reinforces your losses.

Of course, if you're a long term investor you'll note that nothing about the company changed; no deals were cancelled and they are still growing in ways that matter. Their stock is low, making it a good value to pick up.

Re:It wasn't the tweet

[swb]

The idea that releasing the Q1 earnings after-hours allows people to make better judgments -

What you mean is that releasing the earnings after hours allows all the big guys to dump shares first, minimizing their losses, and everyone else wondering if they should eat the now-massive losses on what they hold or just keep holding and hope it goes up again.

Re:It wasn't the tweet

[AuMatar]

Its a good value to pick up if you have some long term faith in the company. But any company where the CEO is making 70 million to lose money sounds way too much like the management is running it for their own benefit to me. I won't be buying.

Re:It wasn't the tweet

[Frobnicator]

This doesn't quite make sense to me. Assuming the bots are smart enough to parse the earnings reports (highly plausible) wouldn't they react the same as if it were a proper release?

There tend to be many additional news stories that temper the results. The markets close at 4:00 PM. That is exactly the moment when the reports leave embargo. Within an hour or so there are human-considered reports hitting the news, and by the time the markets open at 9:30 AM the next day there is plenty of context to place around it.

In this case the bots only get a single source of information and instantly react. Then they are in a hyper-sensitive feedback loop and notice what other bots are doing, selling millions of stock based on a single data point.

When the markets are closed overnight the bots see news articles with both positive and negative reactions, with good words and bad words, building up many different data points, and they tend to take more balanced reactions.

Re:It wasn't the tweet

[kamapuaa]

What the fuck? You know nothing about stocks, why are you talking about it?

The company effectively did change. Investors were expecting $470-485 million sales, and it actually came out to $435 million, and revenue went down 9%. Really shitty news. Naturally, it drove the price down. If news on twitter had been great, the stock would have jumped.

This is a non-story. The stock would have done the exact same thing if they had released the information at the proper time. It just would have done it a day later.

If you think I'm wrong, then BUY EVERYTHING YOU FUCKING CAN IN THIS STOCK. If it sank due to a non-issue, then it should snap up 20% tomorrow.

Re:It wasn't the tweet

[DrJimbo]

Given the way traders think that is the damage that they caused. A few more cases like that and perhaps they will consider that they need to spend a couple of billion on making the bots not panic.

Wall Street will never police itself. It is entirely geared around making as much money as possible with absolutely no concern whatsoever about what is good for society or for the economy in general.

The only real solution is very simple and very easy. Simply tax the transactions. It can be a tiny fraction of a cent per transaction. This will add friction which will slow down this hypersonic trading. The whole thing is ridiculous. These superfast computerized trades are not providing a benefit to society. In fact, they lead to instability which is the exact opposite of what is good for society as a whole.

If we don't do this than the instability will lead to Wall Street crashing our economy again. It is like the RIAA wanting to be paid to make it difficult for people to listen to music. Wall Street is making money hand over fist by making our entire economic system unstable.

Twisted perception

[Taco Cowboy]

Value is entirely based on perception

... which is often biased and/or twisted

Re:Twisted perception

[zlives]

free market or faith based market system?

Re:Twisted perception

[Archangel Michael]

The current version of free market is faith based. You have faith in fiat currency, just to start with.

Re:Twisted perception

[MrBigInThePants]

All currencies are Fiat.

Just because you back one thing of perceived value with another thing of perceived value does not make it less than arbitrary.
Although I will agree backing it with gold makes it "less arbitrary" it is still arbitrary. Not that this is possible anyway since moving a large economy to this would cause a disaster scenario in the price of gold and there is not enough gold for this anyway.

Re:Twisted perception

[schnell]

Nothing says you can't have inflation in a commodity currency (gold from the new world famously did so after all) or deflation. Nothing says the "value" is constant or not arbitrary or anything different from the perceived value.

That's not how it's supposed to work under the old "gold standard" that tinfoil hatters worldwide espouse a return to. Under the old method, you would peg your currency at "$4.75 = 1 ounce of gold" and that was expected to never change. Ever. Otherwise, what's the point if I can say a dollar is worth .00075 oz of gold today and .0008 oz. of gold tomorrow? Because that's pretty much how it works in the open exchange market today. Currency values fluctuate, the price of gold fluctuates - who cares if you can't force the government to give you gold for that dollar bill when you can always find someone to sell some gold to you in exchange for those dollars at the market price?

And the thing that caused everyone to get off the darn gold standard in the first place was not only that you could have inflation or deflation, but if you had deflation or inflation, there was nothing your country could do about it. And if you are deflating and you can't do anything to stop it, your economy is f$%&*ed.

Aside: For those wondering why economists are so scared of deflation, it's because it destroys the rationale for people to save and invest. If it costs $1 to buy a Big Mac today and will cost $1.10 next year, instead of just sitting on my leftover lunch money I should put it in a bank or invest it so that it makes money and I have enough cash for next year's Big Mac. If next year's Big Mac only costs $0.90, then why risk investing it? I will just keep it under my mattress and I have "made" money (more purchasing power) by doing so. Money in mattresses = banks have no money to lend to people who want to buy houses or start businesses = fewer jobs = vicious cycle of economic misery. This, by the way, was what clobbered the world economy during the Great Depression (along with all the banks that collapsed and ate everyone's savings account, making everyone very nervous about putting their money in the bank).

And there's no such thing as "not enough gold". If you moved the world to a gold standard overnight and we pretend that the world economy doesn't collapse then there's enough gold - the value of gold relative to everything else sky rockets of course. And you use a use a representative currency not actual gold coins of course.

Even that doesn't really work though. In Rand Paul's Good Old Days of the Gold Standard, when the world economy was probably 1/50th(?) of today's size but the supply of gold wasn't all that much smaller, you could walk into a Federal Reserve Bank with a non-ridiculous amount of bank notes and walk out with enough US-minted gold coins that you could trade it or do something meaningful with it. If we tied the world economy back to the gold standard at its current size, it might cost you $10,000 to get a big enough slice of gold that it wouldn't just disappear if you sneezed. And if gold is only useful in gigantic transactions far above the amount of cash most people can afford, what's the point?

Re:Twisted perception

[Archangel Michael]

Basically that governments can't increase the money supply arbitrarily.

Our (US) government can't increase or decrease the money supply. The Federal Reserve, a privately held company does that. You want to know why we're screwed? Because only a handful of people have control of the entire US economy, and a large part of the world economy.

More to this?

[Anonymous Coward]

Another story covering the tweet suggests a slightly different story:

What Selerity does â" and they've done this before with Microsoft and ADP â" is monitor the web pages of public companies for changes that might be public, but not necessarily indexed.

This can be done using a simple web scraper â" an application that simply scans a site for pages, often systemically trying every likely URL for a live website.

(cut)

In the case of Twitter's earnings report, it appears that the third-party company (which according to Twitter is the Nasdaq-owned Shareholder.com) that handles Twitter's investor relations page published the page with its quarterly results, using a web address that you could intuit from its current URL scheme.

The URL scheme Twitter used was "https://investor.twitterinc.com/releasedetail.cfm?ReleaseID=XXXXXX." The last published news release had the ID number of "905554."

Presumably, Selerity just had to continue to try iterations of that number sequence until it found the report. Twitter's Q1 2015 earnings had an ID number of "909177" â" meaning the Selerity web scraper would have had to try less than 4,000 numbers before hitting on the right one. Given today's processing power, that could happen in the blink of an eye.

This apparently was denied by Selerity but as many have pointed out, if it were true, is it that different from what troll weev was convicted and did jail time for?

Is guessing a URL really a "hack"?

Re:Halt Trading?

[FooAtWFU]

NASDAQ will halt trading any time your stock suddenly starts doing badly enough (in terms of percentage drop during an individual trading session) but it won't do you much good if people have fundamentally lost faith in your business. All it does in that case is postpone the inevitable by a couple hours at best.

Re:Halt Trading?

[Rich0]

This seems to be a common thing for NASDAQ to halt trading. Can NASDAQ halt trading any time my stocks start doing poorly?

The purpose of it is reasonable enough. If news is being released, they halt trading so that you don't have to worry about people on one news site getting the news 10 seconds ahead of people on another news site, or traders trying to guess the entirety of the news as it is revealed a word at a time.

Basically you plan to release earnings at a particular time, everybody knows this, trading is halted, the entirety of the report is released, people are given a short time to skim the relevant parts, and then people can resume trading having some semblance of having digested the news. That keeps the market more efficient rather than having big swings as people guess at what others might or might not have figured out that they haven't noticed in the news yet.

The same is true of sudden stock movements. It could be a computer glitch. Or it could be insider info. Halting trading lets everybody catch up with the true state of the market, and then everybody gets to start off on a reasonably equal footing. If the issue was a computer glitch humans have a chance to step in and ensure they are trading based on their sense of the actual value of the company.

As was pointed out already, if the fundamentals are bad, nothing is going to help you.

Duh.

[Anonymous Coward]

When you buy stock you are buying a real ownership stake in a real company.

When you gamble, you aren't buying any property...you are buying a chance to roll dice.

That difference should be obvious. They are both risky, but in one you buy something in real, in the other you buy a roll of dice.

Re:Not properly dishonest

[andymadigan]

They can take action on it the next day, once everyone has had a chance to receive and digest the information, rather than acting in a split-second on instinct and fear (and still being beaten to the punch by a computer).

It wasn't the tweet...

[bobbied]

It was the EARNINGS numbers that tanked the share price...

The tweet was just premature because most companies release earnings AFTER the market closes.

The drop in the share price would have happened after the earnings miss anyway, so it wasn't the tweet.

Earnings

[Etherwalk]

Value is entirely based on perception.

Value is based on profit. Profit is disclosed each quarter. This tweet didn't cost $8B; the title is grossly misleading. The quarterly earnings cost $8B in valuation, and the tweet just pushed the loss up an hour or so.

Re:Earnings

[Trongy]

Twitter isn't profitable. Therefore it's value is based on perception, i.e. the belief that it will someday become profitable.

I do agree that the title is misleading. If the earnings report had been release at the normal time the price would still have dropped. This happens all the time with stocks. There possibly was a stampede on this occasion, with people trying to sell quickly to beat the market.

Re:That makes no sense.

[tehcyder]

Inarguable fact: day traders, and HFTs, are making and selling stocks at a rapid pace.

Even if what they do is harmful, and even if it makes stock prices fluxuate even more randomly than they otherwise would, and even if their whole strategy is essentially based on luck....they are still buying and selling real stakes in real companies.

"Gambling" is when you buy a lottery ticket.....a lottery ticket is not a real stake in anything...it is a chance to win money and nothing more. Same goes for other gambling game types.

That is the difference that makes one legal in places where the other is illegal. And it is a perfectly reasonable difference if you don't try to play bullshit semantic games.

The real point is that being able to buy and sell and buy and sell and...in microseconds does absolutely nothing to help the real companies involved. It does not increase their liquidity, or ability to borrow money to make real things, or anything else that stock markets are supposed to do..