Twitter Inc (NYSE:TWTR) reports quarterly numbers again in the beginning of February. Based on past Twitter earnings reports, investors shouldn’t expect much to change.
That could either be a good thing or a bad thing, depending on your perspective.
TWTR stock saw a big drop across the end of 2015 and into January 2016. Then, the social media darling bounced around mostly between $15 and $20 or so for the rest of the year. With shares of Twitter stock under $17 once again, now could be a good buying opportunity. Simply getting back to $20 would be a quick 15% or 20% gain.
However, it’s worth noting Twitter has declined almost 10% since Election Day even as the broader stock market has gained about 10% to the upside. That kind of slide needs to quickly be stopped before the social media company finds itself setting new lows and being left in the dust of this rally.
The million-dollar question, then, is should you buy Twitter Inc. stock now? Here are three pros and three cons to explain both sides of the trade:
Pros of Buying Twitter Stock
Buyout Potential: While TWTR stock was stuck mostly between $15 and $20 in 2016, shares did surge to a high of over $25 in October on rumors of a buyout. Potential acquirers included Salesforce.com, Inc. (NYSE:CRM), Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) and even Walt Disney Co (NYSE:DIS). All it takes is one juicy offer — or even hints of one — and Twitter stock will take off.
Video Potential: If you hadn’t heard, last year Twitter embarked on an ambitious partnership with the NFL. The deal allowed the social media company to offer live, streaming video of pro football games. Reports around the first such game in September showed 2 million people checked out the stream, and that bodes very well for future efforts — and future advertising revenue for TWTR stock.
Strong Leadership: Co-founder Jack Dorsey returned to the company as CEO at the end of 2015. Since then, he has made tough decisions to contain costs, including layoffs, as well as engaging directly with Twitter users about what’s wrong with the platform. As one of the founding fathers, Dorsey has what it takes to make the hard changes TWTR needs to grow in 2017 and beyond.
Cons of Buying Twitter Stock
No Profits: Of course, one of the biggest challenges both to CEO Jack Dorsey and to any potential acquirers is that Twitter remains unprofitable and has no hope of turning that around anytime soon. Consider that in Q3, revenue grew 8%, but TWTR stock also saw its cost of revenue grow more than 12%. That’s not a recipe for success.
No User Growth: Monthly active users have all but flatlined, growing a measly 3% year-over-year in Q3. Worse, the most valuable segment of users in the U.S. is stuck at 67 million users — a measly 1 million more than the 66 million users recorded almost two years ago in Q1 2015. That’s also not a recipe for success.
It’s Not Facebook: The sad reality is that internet advertisers don’t split up their spending evenly among various platforms. They tend to pick one and stick with it — and those platforms are either Google or Facebook Inc (NASDAQ:FB) because both offer sophisticated targeting and massive scale. Twitter simply can’t compete with that, and won’t be able to land the big advertising deals these other digital advertisers can.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP.
