Twitter Inc’s (NYSE:TWTR) moon jump continued on Tuesday with another 2% gains on the back of reports saying co-founder Biz Stone will be rejoining the company. That, as well as a number of other bullish drivers, have TWTR stock staring at roughly 40% gains in the past month, and a 20% advance for the year-to-date.
A cool-off seems imminent.
Tuesday’s charge was led on news that CEO Jack Dorsey invited Stone back into the Twitter fold in an unspecified role. Stone will come aboard in late May or early June, and he said “My top focus will be to guide the company culture, that energy, that feeling.”
But the spark for TWTR stock came April 26, when the company reported a huge beat on the top and bottom lines, and delivered upside surprise in its monthly active users.
Specifically, Twitter earned 11 cents per share in its first quarter, versus estimates for a penny, and revenues of $548 million were far better than the $511.9 million expected. Monthly active users grew to 328 million, while Wall Street experts were pegging MAUs of 321 million.
Twitter also got a boost this week when Nielsen said it would be measuring Twitter’s ads across 23 new international markets; they’re currently measured in just the U.S.
Still, for all the good news, something has to give.
Why TWTR Stock Won’t Sustain
Fundamentally, Twitter’s earnings report wasn’t all aces.
While its top line did beat estimates, it also was down 8% year-over-year — the company’s first decline in revenue. That came on an 11% year-over-year drop in ad revenues. Dorsey even admitted that the company faced “revenue headwinds.”
Meanwhile, the non-GAAP profit beat expectations, but Twitter continues to lose money, bleeding $62 million in red ink — smaller than the year-ago period’s $80 million, but still soundly unprofitable.
Technically speaking, TWTR looks heavily overbought from a look at both the Relative Strength Index (RSI) and MACD. However, Twitter has managed to scream higher for a couple of weeks at overcooked RSI levels, so that alone shouldn’t stop it.
But the company also is coming up against price resistance at the $19.50-$20 region, which rejected the stock back in late December. And of course, TWTR stock is stuck in a long-term downtrend that has shares off roughly 70% from their peak in January 2014, just a couple months after the company’s IPO.
Twitter’s also riding a bull move across the broader tech sector. Over the past month, the Technology SPDR (NYSE:XLK) is up 7%, led by a 10% move higher by Apple Inc. (NASDAQ:AAPL) and a 15% charge by Alphabet Inc (NASDAQ:GOOGL). So not everything is built upon the shaky premise that Twitter itself is simply “fixed.”
The flip side is, that makes TWTR stock all the more susceptible should the market start to correct. Investors and bullish traders alike haven’t seen big profits in Twitter in some time … and you can bet they’ll be quick to lock in their winnings at the first sniff of trouble.
As of this writing, Robert Martin did not hold a position in any of the aforementioned securities.