Digging Into Twitter, And The Correlation Between Hedge Fund Holdings And Stock Behavior

Social media giant Twitter Inc TWTR has been on quite a roller coaster since its IPO in November 2013 as investors have questioned the company's user growth strategies, advertising capabilities, and lack of new innovations on its platform.

The behavior of hedge funds has played a huge part in the volatility Twitter's stock has undergone. To put this in perspective, the hedge funds tracked by TipRanks owned approximately 5.1 million shares of Twitter when the stock had its IPO in Q4 2013. The price of Twitter's shares reached as high as $73.31 as Wall Street held confidence in the company and the potential of its advertising capabilities during the holiday season.

Hedge funds released their fourth quarter 2013 reports in the middle of February 2014, dumping approximately 50% of their Twitter holdings. As such, Twitter dropped to about $50 per share following the hedge fund reports, with Wall Street citing the stock as over-valued. The stock continued to fall during the following few months, reaching as low as $30.66.

There was a huge increase in the amount of Twitter shares hedge funds tracked by TipRanks reported in the third quarter of 2014, reaching about 6.7 million. As a result, the stock price shot up to approximately $48 dollars as Wall Street expected Twitter to have the same user growth momentum as Facebook.

Hedge funds once again dumped about 50% of their Twitter holdings reported in Q1 2015 to approximately 3.3 million shares as the company missed earnings expectations, sending shares down over 24% in the following two days.

Since then, hedge funds have progressively shed Twitter shares as the company's stock price continued to fall. In the last quarter, hedge funds decreased holdings by 2.5 million shares, currently residing at roughly 850,000. Twitter shares last closed at $25.17, close to its 52-week low of $21.01.