I think I’m getting the hang of Twitter Inc (TWTR). I tend to speak in short, witty quips anyway, so the medium is growing on me. It’s almost like trying out my best material on an unsuspecting world.
Twitter is pretty extraordinary if you sit down and think about it in an existential way.
I’m not joking. TWTR basically invented a new language, or perhaps it’s more of a new way of communicating. It’s actually revolutionary in the sense that it requires pithy, concise thoughts, and is spread all over the world instantly.
This is a disruptive medium. Anything can literally explode in a heartbeat — news, reviews, jokes or really stupid statements. As a result of Twitter, a person could literally become famous or reviled overnight.
Somehow, it seems natural that something this disruptive and innovative would be destined to make a lot of money. It hasn’t, though, and that’s why the amazing invention that doesn’t solve a problem can quickly become a relic.
TWTR Stock Has Pros … And Cons
So one of the big “pros” is that it is disruptive, and amazing, but the “con” is that it doesn’t solve a problem. That has created a headache for shareholders, and for investors considering whether or not to get in on Twitter stock.
Clearly the market is struggling to define the value of Twitter stock. At the end of 2013, Twitter stock hit its high of near $70. Now it trades around $17, having fallen around 80%.
Part of the problem is that Twitter is having trouble defining itself. OK, so it’s this new form of communication that kind of lends itself to advertising. Except now it has landed NFL streaming rights for Thursday night games. So that makes it … a streaming service.
Huh?
So now Twitter has an identity problem, and that means Twitter stock will remain confused for some time.
What isn’t confusing is that Twitter stock has been losing money for a long time. Nor is the situation improving much. A $645 million loss in FY13 was still $521 million in FY15, even on a 230% increase in revenue to $2.2 billion.
The good news is that it did get free cash flow last year to the tune of about $40 million.
It has $1.6 billion in net cash, so it certainly isn’t going anywhere, but the question is where exactly it is going. So it got the NFL streaming rights, and that should bring in some ad revenue, although we don’t know if it will offset the costs.
The other troubling thing is that Statista shows unique monthly users as having plateaued this past year at a little over 300 million. I’ve personally skeptical of even that number. How many of these followers are just dummy accounts for politicians and other media personalities? How many are appearing just because it’s a big political year?
So I don’t see Twitter stock as something you should buy because it is a great business. It isn’t. I don’t even know what business it is really in, other than advertising. However, there is one thing to consider.
300 million-plus users are worth something. A company with lots of money will buy it one day and leverage all those users in a way that TWTR cannot.
That company will also overpay.
I think the only reason to buy TWTR at this point is for an eventual buyout.
As of this writing, Lawrence Meyers had no position in any security mentioned.
