Big Upside for TWTR Stock?
Some on Wall Street are ramping up their rhetoric toward Twitter Inc (NASDAQ:TWTR) CEO Jack Dorsey in a way that reminds me of the famous song “Hit the Road Jack” by Ray Charles. While there are truths behind their feelings toward TWTR, there are also positive signs that Dorsey can make things right at Twitter, albeit with difficulty.
First of all, you have to rid yourself of the notion that Twitter is a rival to Facebook Inc (NASDAQ:FB). It may have begun that way, but the recent moves by Twitter are dispelling that link.
Yes, the social media sector is still a never-ending battle for eyeballs or “monthly average users” (MAUs) that are so critical to Wall Street and investors. Facebook wins handily on this. In reality, so do Snapchat and Instagram (owned by Facebook).
Twitter has a lot of work ahead of itself that can either vault the company higher or sink it.
Analyst Ken Sena of Evercore ISI is in the latter camp. In an interview on CNBC, he downgraded TWTR stock to a “sell,” citing poor risk-to-reward and amid competition from Snapchat. Prior to this comment, TWTR was rallying and it traded at $21.10 on August 15, the first time that it was above $20.00 since January 12.
TWTR stock has retrenched below $20.00 after Sena’s comments, but I think he was somewhat incorrect in his assessment.
Comparing Twitter to Snapchat is like the apple-to-orange comparison. They are different businesses. A comparison to Twitter’s struggling “Periscope” app would make more sense.
In my view, it is more than just about the MAUs. If based on MAUs, Twitter’s 313 million users would be well below the 500 million or so at Instagram and above the approximate 200 million at Snapchat.
For TWTR, it is now about creating an identity to drive its MAU higher. This is what Wall Street and investors want to see.
Twitter now seems like it wants to push its platform as a funnel to the live-streaming of sports and entertainment. I actually like the concept and, while it may or may not work, it’s a strategy work undertaking by TWTR, as it would provide some differentiation.
It started with the deal to broadcast the NFL Thursday-night game beginning this upcoming season. On the heels of this deal, Twitter broadcast Wimbledon tennis and has since inked live broadcasting deals with the other three major U.S. sports leagues: the MLB, the NBA, and the NHL.
The hope is that Twitter will drive new viewers to its site and deliver the MAU growth that is demanded. Of course, TWTR hopes to accelerate its push into the highly competitive mobile advertising space with these live streams.
The break above $20.00 was positive, despite the retrenchment to $19.00.
TWTR stock rallied from around $14.00 in mid-June to $18.50 in mid-August, followed by a downside gap to $15.50, but it has regained its upward posture.
Chart courtesy of StockCharts.com
The 50-day moving average (MA) and 200-day MA look to be converging on the chart, with the 50-day MA rising towards the 200-day MA. A break would be bullish and generate a “golden cross” not seen in some time.
Twitter’s upside move has corresponded with a rising moving average convergence divergence (MACD) since early May and strong “relative strength” since June.
Traders could play a potential Twitter rally via “call options” or use “put options” to set a lower entry level.