Twitter stock spikes after buyout report, continuing a tradition of market fake outs

Twitter shares shot up Tuesday after a fake Bloomberg news story reported that the company had received an offer for a $31 billion buyout.

The false report circulated on a site that closely resembled Bloomberg’s website, but by Tuesday afternoon both the financial news site and Twitter confirmed that the story was a sham. Nevertheless, Twitter's stock jumped around 8 percent on Tuesday morning. By Tuesday's close, it fell back down to $36.71 per share, up 2.6 percent on the day.

This particular fake story was especially convincing given how close the design of the sham Bloomberg site was to the real thing. Moreover, the somewhat murky waters Twitter is currently wading in made the buyout scenario seem all too plausible. Nevertheless, this is hardly the first time a company’s stock prices were impacted by a piece of false news.

On another Tuesday two years ago, stock prices dipped after hackers took over the Twitter account of the Associated Press and released a false tweet about a terror attack on the White House. The Dow Jones industrial average dipped more than 130 points, or roughly 1 percent, that day. And when a 2002 story about the bankruptcy of a United Airlines parent company resurfaced by mistake in 2008, it made that stock plummet around 76 percent in a few minutes. Meanwhile, as recently as May, a false offer filed with the US Securities and Exchange Commission to purchase the cosmetics company Avon sent that company’s stocks skyrocketing around 20 percent higher.

Although stock prices generally return to their normal levels soon after these incidents are revealed to be false, this small handful of incidents alone demonstrates the importance of news reports, false or otherwise, on stock market performance, experts say.

“This helps highlight the impact that media reports can have on the stock market. But more than that, it also shows how easy it is to copy a renowned publication and have a significant, albeit temporary, impact on a multi-billion dollar company such as Twitter,” wrote Paul Sawers for Venture Beat.

Although Twitter’s stock prices leveled out quickly, academics studying the 2008 case of United Airlines found that such incidents can have an important and prolonged impact on a company’s stock prices, taking up to six or seven trading sessions before returning to their normal patterns.

A person familiar with the matter told the real Bloomberg Business site that the US Securities and Exchange Commission is now looking into possible market manipulation over the fake news about Twitter. 

Tuesday's stock fluctuations come in the midst of a particularly tumultuous time for Twitter. In April, the value of the company's shares fell by up to 26 per cent, chipping away more than $6 billion from the group’s market capitalization, after an earnings report was accidentally released ahead of schedule. Nasdaq,which owned the platform where the information was released, apologized for the error.

Although the company's stock recovered, last month Twitter's former Chief Executive Officer, Dick Costolo, abruptly stepped down. His resignation came as the company faced intense scrutiny for its slow user growth and inability to attract advertisers to the same extent as its competitors.

Moreover, Tuesday's false report came just a few weeks after one of Twitter's earliest investors, Chris Sacca, sparked speculation about a potential buyout by saying the company would be an "instant fit" for Google if the tech giant were to acquire the social networking site.