Twitter (TWTR) is a public, real-time, global platform where any user can create a Tweet and any user can follow other users. The platform is unique in its simplicity: Tweets are limited to 140 characters of text. This constraint makes it easy for anyone to quickly create, distribute and discover content that is consistent across our platform and optimized for mobile devices. As a result, Tweets drive a high velocity of information exchange that makes Twitter uniquely live.
Twitter reported earnings yesterday, and the initial reaction was positive. While the company is still not profitable, losses were pared to $137 million or $0.21/share versus last year's loss of $145 million. They also made the claim that they expect to turn a profit “soon,” in 2018! Running some “magic” on the numbers– once certain expenses were excluded, the company claimed earnings of $0.07/share. That was actually a beat — sort of — as analysts had expected a figure of only $0.04/share.
On that initial news, the stock had a little pop yesterday. However, after hours, once investors had a chance to digest the news and dig down into the earnings data, things quickly soured and the stock began to nose dive. Critical for a social media company like Twitter is the strength of its user base. And here we see a problem. The company is NOT growing fast enough to provide the eyeballs needed to make money from advertising. The company added only about eight million “monthly active users” (MAU) in this quarter for a total of 312 million MAU.
That slow growth is a bad sign — and that bad sign was even noted by Twitter CEO Jack Dorsey on the earnings call when he said “This is unacceptable and we're not happy about it.” Twitter is badly lagging Facebook (FB), which has about 1.4 billion MAUs. In addition, the growth for Twitter is slowing rather than picking up. This also does not bode well for the company.
VALUENGINE RECOMMENDATION: While many analysts rate the stock a buy and have price targets in the $50/share range, ValuEngine continues its SELL recommendation. We downgraded this stock to SELL back at the end of April. Based on the information we have gathered and our resulting research, we feel that TWITTER INC has the probability to UNDERPERFORM average market performance for the next year. The company exhibits UNATTRACTIVE Price Sales Ratio and Book Market Ratio.
