Twitter Stock as Unpopular With Traders as It Is With Users

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Twitter Inc (TWTR) has been the target of bears — including me — for some time. But as TWTR stock approached its Q3 report date, there were signs that Twitter earnings could come up strong.

TWTR twitter stock price twitterIn fact, the social media stock ran up almost 25% in October before Twitter earnings hit as a sure indicator of optimism.

Unfortunately, when TWTR stock delivered its latest quarterly numbers, much of those gains went up in smoke. Despite Twitter earnings and revenue that topped expectations, anemic user growth and disappointing forward guidance resulted in a big selloff.

It’s just the latest proof that Twitter stock remains in deep trouble, and that this stock is still a dog you should steer clear of.

Twitter Stock Can’t Break Its Slump

First, let’s look at the specifics of Twitter earnings. TWTR posted adjusted Q3 profits of 10 cents per share, easily topping the 5 cents forecast by Wall Street, and its $569 million in revenue topped estimates of $560 million.

That’s a top- and bottom-line beat, so why the selloff in Twitter stock?

Well, the big reason is a measly 3 million new monthly active users on the quarter — less than 1% growth. Year-over-year growth was just 8% in users, too, and the clearest sign yet that Twitter stock is losing momentum on the user front.

Along with this, forward guidance was weak. TWTR expects revenue of $695 million to $710 million in Q4, below previous estimates.

It’s admittedly encouraging to see Twitter closer to breakeven … though I will again point out that the EPS figure reported here is adjusted and that, according to generally accepted accounting principles, TWTR is still operating in the red.

twitter user growth
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And while the beat on forecasts is nice, the fear of stagnation thanks to flat-lining users will continue to be an anchor on Twitter stock. Check out this rather disappointing chart of user growth rates, from Jan Dawson of Jackdaw Research.

What’s Next for TWTR Stock?

Bulls may contend that products like Periscope and Vine will eventually catch on, but with a steep drop in user growth, it is unlikely that Twitter can amp up its profits or build a platform for these new products. The lifeblood of startups — particularly money-losing ones like Twitter — is growth that will theoretically beget the scale necessary to become a legit business.

There is also hope that CEO Jack Dorsey will rejuvenate the company now that he’s returned to the helm. But not only is Dorsey a part-time CEO, he also appears to be the only option; Twitter’s CEO search went on for months and aside from Snoop Dogg there weren’t many impressive names under serious consideration for the job.

Twitter is a great product, and I enjoy using it. But there just aren’t enough people who feel the same way and that ultimately could be the downfall of TWTR.

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP

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Article printed from InvestorPlace Media, https://investorplace.com/2015/10/twitter-stock-twtr-earnings-users/.

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