I’m trying to tweet more. Does that mean Twitter is falling out of fashion?
Usage trends say no. Daily active users rose an estimated 18% to more than 145 million in 2019—we’ll know the exact number on Feb. 6, when Twitter reports fourth-quarter financial results. In 2020, the platform is seen expanding to more than 162 million users, which would bring it back to where it was before a 2018 purge of spam and bots, and a pruning of hate.
Then again, I’ve firmly established myself as a wrong-way genius on matters concerning Twitter (ticker: TWTR). In a summer 2017 story, with the shares at $17, down from the $45 they had started trading at years earlier, I declined to recommend a purchase. Usage trends weren’t great, and Twitter appeared at risk of being crowded out by Facebook (FB) and Alphabet (GOOG) in the fight for advertising dollars. Only two of 35 analysts on the stock were bullish at the time.
“Twitter has to get better or cheaper in a hurry,” I wrote. The stock hit $45 less than a year later. Kindly direct all dartboard jokes and donkey pics to @jackhough.
Since then, shares have slipped again to a recent $33. That includes a 21% plunge on Oct. 24, after the company missed revenue and earnings estimates, in part blaming software bugs that affected advertising. Buy the dip this time? Or is my recent taking to the platform a contrarian warning for the stock?
Twitter appears to have fixed its bugs, and they should pinch fourth-quarter results only a little. This year brings a summer Olympics, a U.S. presidential election, and plenty of advertising. That’s good for the big social media platforms. To tell them apart, by the way, Instagram is for weaponizing beauty and wealth, while Twitter is for doing the best you can with snark. Facebook is where your uncle yells at your coworker about Donald Trump.
Twitter sells for 34 times projected 2020 free cash flow. Analysts have come to loathe it less, with 10 out of 45 now saying to buy. But bucking that trend is Kevin Rippey at Evercore ISI, who downgraded shares to Underperform from In Line in November.
In Rippey’s view, Twitter has ridden a profit margin surge that came from underinvesting in product development compared with Facebook and Alphabet, relative to their size. Bugs were one result. Limited advertising capabilities will be another unless Twitter boosts spending. And that, in Rippey’s view, will lead it to miss Wall Street’s growth estimates in coming years. He sees shares headed to $25.
I have no predictions to add, except that something big will happen to the stock on Feb. 6. Over the past five years, Twitter has gained or lost more than 7% on the first trading day after quarterly earnings releases 85% of the time. It has moved by double-digit percentages 60% of the time. I don’t know which way it will be this time, but I have three weeks to think of something clever to tweet in response. Better not waste time.
Write to Jack Hough at jack.hough@barrons.com
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January 15, 2020 at 04:58PM
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