If you’re looking for a silver lining in Twitter Inc (NYSE:TWTR) stock, at least it has been relatively stable since plunging on a failed bid to sell itself. Still, that’s a far cry from making Twitter stock a buy.
With no clear catalysts ahead, sideways trading is the most shareholders should expect. The buyout premium that was supporting higher prices for Twitter stock is no more. Meanwhile, quarterly earnings failed to spark any kind of uptrend in the name.
The bottom line is that TWTR will be suitable for tax-loss harvesting for some investors, but many more are probably just underwater. Twitter stock is off 25% so far in 2016. Over the past 52 weeks, it’s down 40%. If you want to go back to its all-time high, which was set a few months after going public in 2013, shares have retreated 70%.
Twitter stock also has no catalysts when looking at the technicals. Shares have twice made successful tests of their 200-day moving average recently. If that trend persists, however, it consigns TWTR to treading water at current levels.
Investors betting that Twitter would follow in the footsteps of Facebook Inc (NASDAQ:FB) have been sorely disappointed, and will likely remain that way. Why are they still sticking around?
Click to Enlarge Perhaps TWTR can get a boost if it announces more cost cuts before it reports earnings again in three months. It’s not worth betting on, though, and that’s just a trade.
As an investment, it’s hard to see what Twitter can do to deliver the growth that would justify persistent stock-price appreciation.
Twitter Stock Is Stuck in a Deep Rut
It’s a cliche but it’s true: You can’t cut your way to growth. It’s management by arithmetic at a time when the user base has become stagnant.
To be fair, Twitter tried to juice interest in the social media platform by embracing live video. A partnership with the National Football League to stream games really can’t be topped in terms of content. TWTR itself acknowledges that the deal is more about user growth than revenue generation. Either way, it doesn’t appear to be working.
In the most recent quarter, Twitter’s user base rose 3%. True, that topped Wall Street’s forecast. Too bad it’s nowhere near the kind of accelerating user growth TWTR needs to generate to become relevant for advertisers.
Twitter’s user base has essentially flatlined at a bit more than 300 million, a level it initially crossed in the first quarter of 2015. That’s right: Twitter is rapidly approaching its two-year anniversary of almost zero user growth.
It’s a brutal place to be. Sure, 300 million sounds like a large number, but it’s dwarfed by the digital-ad duopoly of Alphabet Inc‘s (NASDAQ:GOOG, NASDAQ:GOOGL) Google and Facebook Inc (NASDAQ:FB).
Those giants have 3 billion users between them. That’s the type of scale a social media service needs to effectively monetize what it offers. Twitter stock isn’t close. Younger upstarts like Instagram and Snapchat have already surpassed Twitter. It’s pretty clear the company ran out of ideas long ago.
It’s likely that it was never going to be possible to wring profits of Twitter. The challenge of monetizing it was well-known at the time of its initial public offering. The pitch back then was that it would continue to grow at an ever-faster pace — and so the monetization problem would take care of itself.
With no growth and no potential buyout partner, what is the appeal of Twitter stock now? A buy on the dip? It doesn’t even have the technicals on its side.
If no one else wants Twitter, why do you?
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
