How Twitter Inc (TWTR) Stock Fooled the Suckers Again

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TWTR - How Twitter Inc (TWTR) Stock Fooled the Suckers Again

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I have told you and told you. Don’t buy Twitter Inc (NYSE:TWTR).

But oops, you did it again. Between President Donald Trump’s inauguration and its Feb. 9 earnings call, TWTR stock crept up 11.5%. Maybe the new President will save Twitter, the bulls probably thought. Maybe his opponents can use it to rise against him.

The hype lasted until earnings came out. They were terrible.

The numbers could be spun. Look, earnings per share were 4 cents better than expected, at 16 cents. Monthly active users were up 2 million from the previous quarter, at 319 million. Tweet impressions and time spent on the site were up over 10% from a year earlier, and international revenue was up 12%.

But revenue was $717 million, while analysts had expected $740 million. That’s a huge miss. TWTR didn’t spend money on growth, so growth slowed. Those 2 million users represented less than 1% expansion.

During the morning earnings call, CEO Jack Dorsey called 2016 “a transformative year,”  and indeed it was just that.

It was the year Twitter became a joke.

Going “Noware” Fast

Back when I began my life as a reporter, in the antediluvian days of 1983, a company called Ashton-Tate delivered a crippled version of its DB2 database and called it “Noware.” I and my new friends in the computer press panned it.

Still, Ashton-Tate gave out nice maroon T-shirts, and the next year, as the Spring Comdex show was being set up in Atlanta, all the grunts pushing new booths into position wore t-shirts reading, “I’m Going Noware Fast.”

The point is, the failure of a second-rate product can be seen from a mile away. Twitter is a second-rate product. Our Vince Martin saw executives leaving like rats deserting a sinking ship. Our Dan Burrows called TWTR stock “dead money.”

They were right.

Dorsey Does Not Get It

Careful readers of InvestorPlace may note that I have mentioned a possible model for success.  It’s called Weibo Corp (ADR) (NASDAQ:WB).

What distinguishes Weibo from Twitter is where the traffic moves. It doesn’t move up-and-down, between celebrities and acolytes. It moves left-and-right, among friends. Where do you want to meet for dinner? What movies do you like? When can we get together? Scaling casual, social traffic, small self-selecting groups, is the platform for growth, not media.

When you’re moving up-and-down, between big players and little fish, you wind up having to create features for scaled clients without having clients scaled to handle it. Without such scaling, the service becomes a cesspool and user engagement plummets. That is what you can expect now that the “big story” of a presidential race is over.

Could someone pay a premium for TWTR stock and take out shareholders at a profit?

Depends on how stupid they are. Even now, Twitter’s market cap of $12.5 billion represents 5 times revenues. Let’s not even talk about a price-to-earnings multiple.

If Walt Disney Co (NYSE:DIS) were willing to pay, say, $15 billion to take out current shareholders, it would add roughly 4% to its top line and probably lose traction on its bottom line. Twitter needs software investment to grow and be worthy of a takeout. There is no assurance it would grow even with that.

Recently some of China’s Internet entrepreneurs, like Tencent Holdings (OTCMKTS:TCEHY), have begun bringing innovations like WeChat to American users. I think if Weibo brought out an American version of itself, employing the same strategy it deploys in its home market, it would blow Twitter out of the water — quickly.

Twitter is not necessary. It’s not a “must-have” like an Apple Inc. (NASDAQ:AAPL) iPhone, or Facebook Inc (NASDAQ:FB), or Alphabet Inc. (NASDAQ:GOOGL) search platform Google.

Twitter is not a franchise worth buying, at any price. Fool me once, shame on me. Fool me twice, don’t get fooled again.

Dana Blankenhorn is a financial and technology journalist. He is the author of the sci-fi novella Into the Cloud, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he was long AAPL, DIS, FB and GOOGL.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Tweet him at @danablankenhorn, connect with him on Mastodon or subscribe to his Substack.


Article printed from InvestorPlace Media, https://investorplace.com/2017/02/twitter-inc-twtr-stock-fooled-the-suckers-again/.

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