Here’s Why I’m Bullish on TWTR Stock
It looks like the rough times for Twitter Inc (NYSE:TWTR) stock aren’t over yet. After plunging more than 35% in the 2015 calendar year, the TWTR stock price has dropped another 25% since the beginning of 2016. Ouch!
TWTR Stock: Twitter Experiencing Worldwide Disruptions
On Tuesday, January 19, Twitter suffered a temporary outage in the morning. Many of its 300 million users worldwide were unable to stay connected to the social media platform. The problem started at around 3:00 a.m. Eastern Standard Time (EST) and by about 8:30 a.m. EST, some users were still experiencing disruptions.
Of course, Twitter is not the first social network to have an outage. Facebook Inc (NASDAQ:FB) has also experienced technical problems and had a few shutdowns in the past.
Putting this disruption aside, Twitter has much bigger things to worry about. For instance, the company’s co-founder and CEO, Jack Dorsey, said during last year’s second-quarter earnings conference call that “we have not communicated why people should use Twitter, nor made it easy for them to understand how to use Twitter. This is both a product issue and a marketing issue.” (Source: “Twitter’s (TWTR) CEO Jack Dorsey on Q2 2015 Results – Earnings Call Transcript,” Seeking Alpha, July 28, 2015.)
As you can see from Twitter’s stock chart, precisely after Dorsey’s comments, TWTR stock started its downward trend.
Chart courtesy of www.StockCharts.com
Other than concerns about communicating Twitter’s value, investors are also worried whether Jack Dorsey can handle two full-time jobs at once, being both CEO of Twitter and CEO of the digital payments company Square Inc (NYSE:SQ). Sure, the two companies are only located a few blocks apart, but it’s definitely not a cakewalk to run two publicly listed companies at the same time.
TWTR Stock: Not Dead Yet
Note that social media companies have only become popular in about a decade or so. Many are still exploring ways to monetize their traffic and not every attempt is going to be successful. Luckily, with Jack Dorsey’s entrepreneurial spirit, Twitter has already made several smart moves to improve its advertising revenue.
One of the new features Twitter rolled out was “Moments,” which brings the day’s most talked about stories to users in a magazine-like view, even if they haven’t followed a single person. Not only was the feature welcomed by Twitter users, but it also helped to create a new way to advertise on Twitter with “Promoted Moments.”
Promoted Moments is in line with the trend of native advertising, because the ads fit nicely with the other content. As Internet users become increasingly aware of ads, having an ad that looks just like other content and won’t be easily ignored or discarded as an ad is crucial for social media companies like Twitter to sell their platforms as a lucrative marketing tool. The new advertising feature was launched in the fourth quarter of 2015, so we’ll see how it adds to the top-line numbers in the company’s upcoming earnings report.
Despite all the concerns about Twitter’s growth, the company actually did pretty well in the third quarter of 2015. Revenue surged 58% year-over-year to $569 million and was also above the high end of the forecast rage of $545 million–$560 million. Excluding the headwinds from foreign exchange rates, revenue would have increased 64%. (Source: “Twitter Reports Third Quarter 2015 Results,” Twitter Inc, October 27, 2015.)
Monthly active users (MAUs), one of the most important metrics used to measure the performance of social media companies, also turned out to be good for Twitter. In the third quarter of 2015, Twitter’s total average MAUs came in at 320 million, an 11% increase year-over-year and an increase of four million from the previous quarter’s 316 million MAUs.
The Bottom Line on TWTR Stock
By having a high beta, TWTR stock might not be able to change its direction that easily due to the sell-off in the overall market. With the company poised to gain traction on user growth and improve top-line numbers, Twitter stock could become popular again.