Twitter fell the most since its second day of trading after Wunderlich Securities initiated coverage with a sell rating, citing concerns that user growth may be limited compared with rival social networks.
The San Francisco-based company, whose online service lets users post 140-character messages, fell 6.5 percent to $41.14 Monday's trading. Earlier, the shares dropped 6.7 percent, the steepest decline since Nov. 8. A quarter of analysts covering Twitter now rate the stock a sell, and less than half recommend buying it, according to data compiled by Bloomberg.
Twitter has come under pressure as analysts question whether the company can deliver strong enough growth to justify its stock price, which rose more than 70 percent on Nov. 7, the first day of trading after an initial public offering. Twitter doesn't have the same potential to expand its user base as rivals Facebook and LinkedIn, Blake Harper, an analyst at Wunderlich Securities, wrote in a note Monday.
"We believe the engaged community has also created a barrier for attracting new users who may not yet understand how Twitter works," he wrote. "The company must better simplify and customize its product to reach new users in the mass market to justify its current growth projections."
On Saturday, a story in Barron's said social-media stocks, including Twitter and LinkedIn, may be overvalued.
Facebook, owner of the world's largest social-networking service, declined 4.9 percent. Through Nov. 15, the stock had already decreased 9.6 percent since reaching a record on Oct. 18. LinkedIn slipped 3 percent to $224.05.
Menlo Park-based Facebook spurred concerns about growth last month after it said usage among some teens declined during the third quarter. The company also said it would limit space for expanding advertising, its main source of revenue, as it tries to keep parts of its service from being overrun with promotions.
Facebook, which held its market debut last year, remains much larger than Twitter. While Facebook has more than 1 billion users, Twitter has less than 250 million. Its market value is about $115 billion, compared with about $23 billion for Twitter.
Even with Twitter's challenges, Wunderlich's Harper said the company has potential to boost annual revenue by an average 49 percent for the next three years, citing its effective targeting platform for advertisers and its ties to television programming. The service is popular on mobile devices, where consumers are increasingly accessing digital content, and may attract 4 percent of total advertising spending for smartphones and tablets, he wrote.
"The service is inherently well-suited for mobile devices, with the short length of tweets ideal for smaller screen sizes," Harper said.