Ignore the Twitter Inc Skeptics; This Is Why TWTR Stock Has Serious Upside

Twitter IncTakeover or Growth: Either Way, I’m bullish on Twitter

The crisis at Twitter Inc (NYSE:TWTR) shows no sign of ending. Today, Twitter stock dropped well below $19.00 per share again. Is Twitter still feeling the effect of a disappointing second-quarter 2016? The second-quarter revenue was less than expected and investors were evidently disappointed. But the main concern is always the same, which is that average active user numbers are not growing fast enough.

This is a problem because, in fact, Twitter did improve on average monthly active users (MAUs). These rose to 313 million; that’s three times more than in the first quarter. But Wall Street doesn’t like this figure. It’s too small to reflect a substantial increase in revenue and, thus, TWTR stock is suffering.

Another factor that exacerbated the fears of apprehensive Twitter shareholders was its guidance for the third quarter. Twitter stock will not experience any major bullish moves, given the revenue expectations of between $590.0 million and $610.0 million. These are far lower than analysts’ consensus estimates of $678.0 million.

Twitter Is Not as Bad as It Seems

But the Twitter picture is rather less dire than how Wall Street analysts are choosing to see it. Perhaps they need slightly rosier glasses, because, if you look closely enough, there is a bullish side to Twitter that hasn’t made the headlines. The $602.0 million of revenues recorded from April to the end of June represents an increase of 20% compared to a year earlier. Advertising revenue is up 18% year-on-year to $535.0 million. Revenue is growing especially well internationally, by 33%. And these are just a few of the key statistics that offer a rather more optimistic case for Twitter stock. (Source: “Twitter (TWTR) Q2 Loss Narrower, Revenues Lag on Ad Woes,” NASDAQ, July 27, 2016.)

But for analysts, that is not enough; the market wants to see growth at a rapid pace, such as the crack shots of its increasingly aggressive competitors, such as Facebook. But now, there has been increasing talk of Instagram and Snapchat attracting Twitter users away. The users who go away choose to participate in social media other than Twitter, evidently also divert advertising investments.

Twitter management can hardly be accused of being static. CEO Jack Dorsey has made a strong effort to diversify Twitter’s offerings, while remaining true to its 140-character brand. Twitter is making modifications to its platform to maintain the character of its product, while increasing its appeal. In fact, there are a couple of things to consider about Twitter stock.

The first might be that anyone who wanted to quit investing in Twitter stock has already left the building. Twitter bears have been on the prowl for well over a year now. Those who are still bullish are not going to be persuaded by negative rhetoric or what might be excessive Wall Street expectations.

Twitter Is Not Competing Against Facebook

One of the problems is that some investors and many analysts seem to think that Twitter is somehow a natural competitor to Facebook Inc. (NASDAQ:FB) simply because they are both “social media” companies. Given this broad range, as the theory goes, Facebook and Twitter compete for MAUs. But, as it happens, they are not competing for the same MAUs. Twitter has a much more “media” flavor. As for the more personal media battles that ensue, Twitter is closer to Snapchat. But even here, they are rather different.

Snapchat will remain more ‘chat’ than Twitter, which is switching away linking up with major sports franchises to take advantage of live-streaming of NFL football matches, tennis tournaments or basketball games. This is a relatively new feature, and it’s bound to grow into one of the major new revenue and MAU growth streams for Twitter.

As for Twitter stock, it’s true that shares have dropped over the past few days. But it’s also true that TWTR stock was trading at less than $15.00 per share just before the summer, reaching to almost $21.00 last week. The bottom line on Twitter is that it is still capable of generating some bullish sentiment, and there are no reasons to be heading for the exits just as Jack Dorsey has unveiled an interesting growth strategy. With a little refinement and a few more quarters, Twitter stock will start to show results.

The Bottom Line on TWTR Stock

At worst, investors can always hope for a takeover by a bigger player. Twitter’s concept has become part of the cultural fabric. It has real value. This means that the upside is much greater than the risk. But if there is a basic point, it’s that either Twitter pulls off growth and TWTR starts gaining “organically,” or it gets bought out by a bigger player. Either way, these are bullish prospects. For more bullish prospects, you may find this interesting: “Defense Stocks: If Hillary Clinton Wins, These 3 Defense Stocks Could Soar.”