Twitter Inc (NYSE:TWTR) keeps adding streaming content to its service, but the market remains unconvinced that this will be the solution to the stagnant user growth hampering TWTR stock.
Well, they should.
With the exception of securing the rights for 10 NFL games this year, Twitter’s other deals hardly sound like barn burners. On Tuesday, TWTR said it inked a deal with Bloomberg to stream a number of its shows, including Bloomberg West, With All Due Respect and What’d You Miss?.
With all due respect to the generally high-quality programming, very few people watch these programs, even on regular old cable television. Bloomberg doesn’t disclose ratings for its TV operations, but they’re known to be lower than CNBC’s and even they only draw about 180,000 viewers during peak hours. Twitter needs to increase its user base by an order of magnitude greater than that.
Other additions to TWTR’s streaming content programming are likewise pretty small beer. The micro-blogging site has the rights to carry CBS Corporation‘s (NYSE:CBS) live coverage of the Republican and Democratic Conventions. The quadrennial gatherings will likely get their best ratings in years, but Twitter needs people to sign up for the service and stick around after the conventions ends.
Good luck with making that material.
In 2012, the final night of the Republican Convention drew approximately 30 million viewers. In 2008, ratings hit roughly 40 million. It’s fair to assume, then, that this is the market opportunity TWTR is playing with. If the company were to convert, say, one-tenth of that pool, it would grow its user base by roughly … 1%.
TWTR Stock’s Sour Sentiment
Twitter assumes that all it has to do is get the user base growing again and advertisers will follow. Will they? The duopoly of Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG) and Facebook Inc (NASDAQ:FB) is working quite nicely for them. Besides, there’s likely a large degree of overlap in targeting these sites’ viewers.
It’s difficult to imagine how TWTR can scale rapidly enough to turn market sentiment on Twitter stock.
To get a sense of how investors feel about Twitter stock, look at how much they’re willing to pay for its growth prospects. A price-earnings-to-growth (PEG) multiple can be useful in this regard. True, a lower PEG can mean that a stock is cheap, but it’s also an indication of investor optimism along the lines of the price-to-earnings ratio.
The broader market has a PEG of 2.2, according to Thomson Reuters. That means the S&P 500 is rising more than twice as fast as its growth prospects. This makes some sense because near-zero and negative interest rates have made equities the only game in town.
By comparison, TWTR stock has a PEG of just 0.7, Facebook stock goes for 0.9 times earnings growth, and GOOGL changes hands at 1.3. The market just doesn’t think all that much of Twitter’s prospects right now.
It’s possible that TWTR stock could get a boost from its next earnings report, two weeks from now, but analysts aren’t betting on it.
TWTR stock has had a nice run over the last month, but its long-term prospects hinge on some kind of radical strategic change. A live stream of Bloomberg West probably ain’t it.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
