Jon Erlichman

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With Twitter's stock sinking as much as 21 per cent in Thursday afternoon trading, investors were quickly reminded of the pitfalls associated with "buying the rumour."

In the previous two weeks, Twitter's (TWTR.N) shares had risen by more than one third, on growing excitement about a possible sale of the company. Investment bankers with ties to the potential transaction had a field day with reporters, floating names including Google, Disney, and Salesforce as possible purchasers. 

When a company is weighing its options -- and clearly, Twitter has been talking to a variety of players about the possibility of a sale -- the normal course of action is to gauge interest. Possible buyers are approached, while others potential bidders proactively inquire. 

In the world of M&A reporting, the fact that a company may be interested in a deal (cue long list of caveats) qualifies as a story. The appetite various media outlets have to incrementally advance the story -- breaking each new minor detail on Twitter, of course -- led to a frenzied run up in the company's stock, only to see a painful drop on fresh revelations that "interest" does not always result in "offer."

In the spirit of vague reporting, we can certainly say Twitter may be sold. And that, perhaps, the buyer will be a tech company, media company, or an investor group. We can also equally say Twitter may not sold. 

Removing the less than helpful rumours from the equation exposes the simple truth: Twitter is a company saddled with big expectations. 

Twitter's sales have certainly been growing. It reported revenue of US$602 million in its second quarter -- a 20 per cent increase from the previous year.  But the growth is slowing down. By comparison, its revenue in the second quarter of 2015 rose more than 60 per cent. Meanwhile, Facebook generated US$6.4 billion in second-quarter revenue, a 60 per cent advance. Much of that has to do with scale. Facebook has more than 1.7 billion monthly active users, while Twitter's user base stands at 313 million. 

The differences between the businesses of Facebook and Twitter might be more acceptable to Twitter's investors if the company's market valuation did not currently stand at US$14 billion.  Assume that a typical deal premium would place an even greater price tag on a company figuring out the next leg of its growth strategy. 

And so after all the rumours, speculation, and reports, Twitter investors are right back where they started. Until something new on this story breaks on Twitter.