Twitter Inc: Here’s Why the Twitter Stock Bears Are Wrong

Twitter IncTwitter Stock Bears Too Focused on User Numbers

Twitter Inc (NYSE:TWTR) slowly appears to be enjoying a more sustainable—if not quite so rapid—recovery. Twitter stock closed at $18.65 in Monday trading; it has not seen this level of trading since last March. It appears that the efforts to gain user visits and produce more revenue are starting to work.

Yet, there are many questions left, as Twitter is set to report earnings before some disillusioned investors. Once optimistic analysts like Bob Peck at SunTrust Robinson Humphrey are dismissing Twitter’s user-growth efforts, noting that the recent interface and other changes (“Moments”) have failed to produce the desired results. (Source: “Once again, investors are bracing for disappointing Twitter results,” Quartz, July 25, 2016.) Yet Twitter stock gained 1.5% today. That doesn’t sound bearish ahead of earnings.

Twitter Stock Down 50% Over Past Year

Many Twitter shareholders are wondering whether or not to keep hanging on, but the main statistic for Twitter shareholders and the course of TWTR stock is the number of monthly active users (MAUs). (Source: “Should I Buy Twitter Stock After Q2 2016 Earnings?,” Money Morning, July 25, 2016.) The equation is simple: more users mean more advertising and therefore, more revenue.

MAUs are the key statistic to watch to grasp the performance dynamic for Twitter stock. In the first quarter, Twitter said it had 310 million MAUs, better than Wall Street’s estimates of 308 million. That sounds impressive, but it’s only a few million more than what Twitter reported in the last quarter of 2015. Other social media sites like Facebook Inc (NASDAQ:FB) MAUs. But that was only an increase of just 1.63% from the 305 million MAUs Twitter reported in Q4 2015. Facebook, in comparison, increased MAUs by 3.7% from Q4 2015 to Q1 2016.

Wall Street likes to see rising MAU numbers, as these supply evidence that Twitter can increase its revenue. Twitter seemed to have discovered how to attract more visitors and convert them into signups.

Like many other U.S. companies, Twitter will soon present its financial results for the second quarter. These will no doubt set off many discussions about what avenues the company is taking to resume growth and to boost Twitter stock.

Last year, Twitter shareholders found many reasons to be disappointed, even after co-founder Jack Dorsey returned as CEO. Actually, Twitter’s situation has improved since the end of last year, even if Twitter stock has not fully reflected this yet. Twitter has continued to add users thanks also to such initiatives as “Periscope,” which has added live streaming capability to Twitter. Forecasters are inclined to predict a sharp slowdown in growth in 2017, but they may be more wrong than right.

Still, there are lone wolf but credible reports that Twitter could also experience a surge in new users. There may be a user growth surprise to be included with the company’s earnings report next week. A web site known as eMarketer has predicted that over the next year, thanks to the new features and buoyed by big draw events such as the Democratic Party Convention in Philadelphia, Twitter could see an almost 11% increase in user growth by the end of 2016 to reach 286.3 million users. (Source: “Twitter’s User Base to Grow by Double Digits This Year,” eMarketer, July 22, 2016.) Such numbers would represent a better performance than in 2015, which produced 9.8% growth. By 2020, Twitter predicts its users to reach 370 million.

The Bottom Line on Twitter Stock

The bottom line is that Twitter is growing and rapidly. However, in the modern e-economy, analysts expect a more breakneck pace. Twitter will be looking for growth beyond the United States. The challenge is to reach out in the emerging economies, where population numbers are high and social media tools are popular.

As well, Twitter knows it can achieve growth in the fast-growing countries of the developing world, because Brazil is one of its most important markets. (Source: “Twitter on course for user growth,” Warc, July 25, 2016.) So, Twitter stock could finally see some important gains. Indeed, over the next year, Twitter has an ideal platform to build its userbase, given the sheer extent of major public and political events to attract the tweeting public.

Despite the critics, Twitter has much room left to grow—and we haven’t even started to discuss the possibilities of Twitter being bought out.