After a tumultuous quarter and a management shuffle, Twitter, Inc. (NYSE:TWTR) suffered a huge slash to its market cap. Investors pummelled TWTR stock in after market trading on the release of Twitter’s quarterly earnings. At one point, TWTR stock was down more than 14%.
Wall Street had expected Twitter to deliver $560 million of revenue and five cents of earnings per share. The estimates were in line with the recent history of TWTR stock, where lagging subscriber growth has weighed heavily on advertising revenues. (Source: “Twitter plunges as much as 12% on light guidance,” CNBC, October 27, 2015.)
Luckily, Twitter managed to exceed expectations with $569 million. The expenses were trimmed and TWTR stock provided investors 10 cents in earnings per share, but that didn’t stop investors from battering Twitter stock.
The massive sell-off came soon after the closing bell on Tuesday October 27th. Investors couldn’t get rid of TWTR stock fast enough. It was a bloodbath.
Is This the End for TWTR Stock?
Normally, when a company gets hit as hard as Twitter was hit on Tuesday, they don’t get back up. The decline tends to be a permanent stagnation and the stock simply readjusts to its new level. Is that the fate of Twitter stock?
Maybe. Investor sentiment matters more for the fate of TWTR stock than many analysts would like to admit. If investors start classifying Twitter stock as a low-grade item, they’ll be unwilling to extend any leeway to Twitter’s management.
For instance, Jack Dorsey was supposed to be the saviour of TWTR stock. He’s one of the founding members of Twitter and recently returned to resurrect it. Never mind that he’s also running another firm that just applied for its initial public offering.
Now Dorsey could theoretically pull off a turnaround for TWTR stock. He has already cut 336 jobs, proving he’ll trim the fat to boost Twitter’s bottom line. But some of his plans might require a timeline longer than three months, meaning they won’t show results at the next earnings call for Twitter stock.
Giving Jack Dorsey the freedom to try and execute a long-term vision means investors need to have faith in Twitter. That kind of trust is fickle. If a bad earnings call can drive Twitter stock down 14%, it doesn’t look like the market is in any mood to trust it.
Any Upside for TWTR Stock?
I’m not the biggest fan of quarterly capitalism, so this development has weakened my bullish stance on TWTR stock. Nonetheless, some of the supposed negatives of Twitter aren’t really that bad. Take the monthly active users, or MAUs.
Twitter had 307 million monthly active users, meaning over nine times the population of Canada used their Twitter account last month. Remember that TWTR stock was punished by markets but MAUs actually grew by three million from quarter-to-quarter.
“We continued to see strong financial performance this quarter,” said CEO Jack Dorsey. “We’ve simplified our road map and organization around a few big bets across Twitter, Periscope and Vine that we believe represent our largest opportunities for growth.”
There is some hope for TWTR stock. If enough cost reduction can keep boost the performance of Twitter stock in the short run, then Jack Dorsey could earn the space to innovate.
If his long-term vision works, Twitter could possibly regain its premium status.