Is This the End for Twitter Stock?
On Friday, the market took a sledgehammer to Twitter Inc (NYSE:TWTR), pummeling it over an imminent board of directors meeting. Investors seemed to think that the meeting spelled doom for TWTR stock, but I’m not sure I agree. Bearish investors love nothing more than to rain garbage down on Twitter stock.
For instance, CNBC reported that Twitter is looking to rein in spending, which would normally be a positive sign for investors. A little thriftiness goes a long way in business. But for some mysterious reason, the market took it as a sign that management expects Twitter’s revenues to fall. (Source: “Sources: Jack Dorsey only has a few more quarters to fix things at Twitter,” CNBC, September 8, 2016.)
The sources also emphasized that CEO Jack Dorsey’s management won’t be discussed. They say he still has a few quarters of goodwill left within the firm. In my experience, this kind of comment is designed to raise more questions than it answers. Dorsey is currently running two public companies at the same time, so the implication is that he’s running out of time.
A lot of media outlets are playing to that narrative, except that’s not what the source actually said. They literally said Dorsey’s job is safe. This meeting is not about him; it’s not about falling revenues. It is about trimming the fat (and exploring a potential sale, but I’ll deal with that in another piece).
It’s obvious that the drop in Twitter stock was a massive overreaction. But what’s worse is that investors always jump to the wrong conclusions about TWTR stock.
No Faith in Twitter Stock?
To be blunt, Twitter has never been able to escape the shadow of Facebook Inc (NASDAQ:FB).
TWTR stock bears continually point to the difference in subscriber growth. Facebook’s monthly active user base surged to 1.7 billion over the last couple of years, while Twitter’s base is still hovering at 310.0 million. The bears also point to the difference in Twitter and Facebook’s bottom lines. The former is drenched in red ink; the latter in black.
This comparison casts a pretty dark shadow across TWTR stock, but it isn’t the whole story. Twitter stock bears want to present a biased narrative.
They don’t want you to know that Twitter is on the verge of extraordinary gains. How, you ask? Well, several months ago, the company signed a deal to broadcast “Thursday Night Football” for the National Football League (NFL). They have also signed other broadcast deals with the National Hockey League (NHL), the National Basketball Association (NBA), and the Association of Tennis Professionals (ATP).
And then there’s the political content. Twitter’s live streaming video service became a core distribution avenue for the Republican and Democratic National Conventions. In general terms, these contracts have reinstated Twitter’s cultural importance. But in more specific terms, they suggest that Twitter’s revenues are poised for massive gains.
Advertisements on video content are more expensive than “Promoted Tweets,” which have (in the past) made up most of Twitter’s revenues. By establishing itself as an essential distribution source for live video streaming events, Twitter is ensuring that those big ad dollars start flowing its way. These new contracts are effectively transforming Twitter into an online TV station.
Not only does that suggest a turnaround in TWTR stock, but it shows that Dorsey really was the firm’s messiah. After years of stumbling around in the dark, the company has finally found its way, and Jack Dorsey is responsible for that.
So I don’t care that Twitter stock fell three percent on Friday. I don’t even care that it fell 33% over the last year. To me, those just show that TWTR stock is trading on the cheap. What I’m interested in is the opportunity to make triple-digit gains on this down-and-out technology stock. It’s just laying there, waiting for the taking.
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