Twitter Stock and the NFL
After Twitter Inc (NYSE:TWTR) aired its first National Football League (NFL) game last week, I felt a subtle change in investor sentiment. The market finally glimpsed what we’ve been talking about for months: that Twitter stock will never become a social media success, but it could easily become the future of cable TV.
Think about it: Twitter isn’t even listed as a social media app in the “App Store.” It is making a gigantic pivot toward live-streaming TV, and this shift could make TWTR stock a valuable commodity. At long last, the company can escape the shadow of Facebook Inc (NASDAQ:FB). (Source: “Game Time For Twitter: Jack Dorsey’s Big Bet On Live Events,” Fast Company, September 12, 2016.)
Every time earnings season rolled around, Twitter stock would get hammered by the market. Investors couldn’t understand why TWTR stock couldn’t match Facebook’s rapid growth of both users and profits. But I always thought it was pretty obvious. Twitter is designed for immediacy; advertisements are not.
If you’ve never used Twitter, let me explain. People write little messages of 140 characters or less and send them out into the Twitter-verse. The stream of these tweets flows continuously, day and night. If you miss something—a joke, a news story, or a debate—it’s pretty hard to catch up.
Twitter was inherently a bad fit for social media advertising. Advertisers want to target customers with the precision of a sniper rifle. They want those ads to sit there, tempting people to click on them. Twitter isn’t designed for that, but Facebook is; it’s as simple as that.
But live TV (especially live sports) is much better suited for Twitter. It’s got the same sense of urgency. You want to be watching the game as it’s played, not several hours later. That means you’re tuned in when advertisers run commercials. It also means TWTR stock could more than double in 2017.
Let me explain…
A Rebound for TWTR Stock
As part of its new TV ambitions, Twitter has also signed deals with the National Basketball Association (NBA), the National Hockey League (NHL), Major League Baseball (MLB), Wimbledon tennis, and CBS News. Twitter also live-streamed both the Democratic and Republican national conventions. But the NFL contract alone could turn Twitter stock into a powerhouse in 2017.
If you look at the history of ESPN and Fox Sports, they both used NFL licenses to build their respective empires. It’s an open secret in the industry. Neither organisation would be the giants they are today without the rights to broadcast football games. It was their ladder to success.
Now Twitter could use that same ladder to carry TWTR stock back up to previous highs. The company is finally living up to its potential, meaning it could rebound by up to 186%. Remember that Twitter stock was trading near $53.00 just last April. The share price only fell because investors believed Twitter had squandered its opportunity, but that’s clearly not the case anymore.
So why is the market still bearish on TWTR stock?
Simple: investors lose faith more quickly than they gain it. Twitter stock once lost 25% of its entire value in three trading sessions, meaning investors were quick to fall victim to their own fears. I’ll bet it will take them twice the amount of time to turn bullish on Twitter stock.
The market is blind in the short term, but clairvoyant over the long term. Sooner or later, investors must realize that Twitter stock is not the investment they once knew. They’ll probably realize that its new identity as a live-TV-streaming company warrants a fresh valuation.
Judging by the success of Fox and ESPN, this fresh valuation could be huge for current holders of Twitter stock. Even if the market is slow to bring TWTR stock back up to $53.00, my guess is the stock could double in the next 18 months.