Twitter Stock Needs More Than Just Advertiser Outlook
Advertiser Outlook Rallies Twitter Stock
Twitter Inc (NYSE:TWTR) got a huge bounce last week as advertisers showed optimism about the company’s future. The TWTR stock price jumped nearly 11% to $18.50 as of Friday afternoon, but the reaction may be too little, too late. Twitter stock needs more.
Let’s put the rally into perspective. Here’s what happened.
Cleveland Research, a small research firm, showed that advertisers were feeling more optimistic about Twitter’s user growth. This ray of sunshine was enough to turn investors bullish on TWTR stock, which shows just how desperate they are for good news.
Here’s what Cleveland Research had to say.
This is the best relative feedback in our TWTR research in 2+ years, suggesting some potential bottoming in fundamentals; we look for follow-through improvement in our research for turning more near-term positive.
(Source: “Twitter shares pop 6.5% on report of strong advertiser outlook,” CNBC, June 21, 2017.)
I guess all praise is relative, because this would read like a eulogy for any company that hadn’t lost 50% of its market cap in the last 12 months.
The part about “potential bottoming in fundamentals” is promising, but it is undercut by a lack of substance. Even the research firm doesn’t expect revenue to increase any time soon. Its own model shows revenues falling 15% through the remainder of 2017.
So, really, the uptick in Twitter stock is built on a hope and a prayer.
I wouldn’t expect this trend to last. Twitter has disappointed investors time and time again, regardless of who wore the CEO hat. Dick Costolo, Jack Dorsey…it hasn’t seemed to make any difference who was at the helm.
This ship is sinking irrespective of their celebrity cachet.
Read: Best Tech Stocks to Consider Buying in 2017
Twitter Stock Needs More Than Optimism
What is Twitter’s core function?
Amazon.com, Inc. (NASDAQ:AMZN) wants to become the “Everything Store.” Facebook Inc (NASDAQ:FB) wants to “Connect the World.” Google wants to be our “Gateway to the Internet.” Having this focal point is important to a business, and consequently, to its share price.
Companies need to define their goals, or else they crumble.
Twitter does not have long-term vision. That’s why the Twitter stock price crumbled over the last few years.
Chart courtesy of StockCharts.com
So far as I know, this trend is unchanged. Twitter didn’t manifest a new destiny from thin air. It remains as it ever was, a successful product that couldn’t become a successful company.
There were rumblings that Twitter could establish a foothold in live-streaming TV, but that didn’t come to much either. Sure, it cut deals with the NFL, MLB, Buzzfeed, and Viacom, Inc. (NASDAQ:VIA). And then…what, exactly? Nothing happened.
Monthly active user growth (MAU) remained in single digits, sales dropped eight percent, and the company lost $62.0 million in one quarter. The fact is that Twitter waited too long. (Source: “Q1 2017 Letter to Shareholders,” Twitter Inc, April 26, 2017.)
There are other competitors moving into the live-streaming space, including (if the rumors are true) Apple Inc. (NASDAQ:AAPL). This means that the first-mover advantage that was available to Twitter has now vanished, leaving it stranded in no-man’s land.
There are just so many things working against this stock. How can anyone expect it to compete against Apple, which has unlimited money and all the cache in the world? It simply cannot.
Check out: TWTR Stock: Targeting New Lows
What Twitter needs, nay, deserves, is a strong acquisition offer. I would be happy to see this stock get picked up by one of the big tech giants. That way it can continue to exist, but without any of the pressures of making a profit.
This would satisfy everyone involved. TWTR stockholders get relieved of a burdensome stock, users get to keep the service they love, and a smarter tech company gets useful data.
In my opinion, that is the only positive ending to this story. All other versions end in a Yahoo!-esque fall from grace.