Bail on TWTR Stock?
Twitter Inc (NYSE:TWTR) stock is finally making the news again but it’s not because the social media company announced strong growth metrics. The battered down TWTR stock is attracting unsubstantiated takeover speculation again driven by Microsoft Corporation’s (NASDAQ:MSFT) proposed acquisition of LinkedIn Corp (NYSE:LNKD).
Speculation of a Twitter takeover has been milling around since the stock crashed to its current levels after failing to grow its userbase like Facebook Inc (NASDAQ:FB). But so far there has been no known interest in buying Twitter despite its somewhat attractive valuation.
While Microsoft paid an excessive 50% premium for LinkedIn, there is no guarantee Twitter will attract a buyer that would likely have to pay more than $15.0 billion for the company.
The reality is that Twitter has to convince the market what it wants to be. Its userbase of about 310 million has failed to gain any traction and this must worry potential buyers.
Still, TWTR stock trading near its all-time low is worth a look for the aggressive investor, especially if a bid surfaces.
Twitter cannot try to be like Facebook. I think CEO and founder Jack Dorsey realizes this. If he doesn’t, TWTR stock will continue struggling to find its way in a highly competitive space.
Chart courtesy of www.StockCharts.com
Armed with a strong balance sheet and approximately $2.0 billion in net cash and solid working capital, Twitter is in no rush to please the stock market. Clearly, Dorsey wants to do it the right way, regardless of how much time it takes.
The move by Twitter to stream a weekly NFL game was a great start, as it could draw new users to the platform. At least, I think it will.
If this move is successful, Twitter could then look at streaming other live entertainment, whether that is sports, theatre, concerts, or anything that has mass-market appeal.
Of course, generating dollars from the lucrative mobile advertising space will be critical. The company is pushing its “First View” video service, which allows companies around the world to display video advertising on Twitter. In my view, the use of Twitter as a mobile advertising strategy makes a whole lot of sense.
Twitter also just invested $70.0 million for roughly a 10% stake in “SoundCloud”—a music streaming service that is facing a tough competitive space.
There’s no guarantee the venture will pay off but it does add another reason for users to come to the Twitter platform. The music streaming service is different from its rivals in that it caters to songwriters who want a free platform to distribute their music.
In my view, while Twitter has yet to deliver that game-changing event, I like the fact the company is working on numerous different products to try to drive interest to the site.
As I said, the strong balance sheet helps. Twitter is also set for growth in both earnings and revenue for this year and into 2017. Revenue is estimated to advance 50% and 20.80%, respectively, this year and in 2017.
Trading at 0.68X its five-year compounded annual growth rate for earnings, I like the discount with TWTR stock. The stock has limited downside risk due to the strong cash and fundamentals, so it may be worth a look.