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Why Twitter Inc (TWTR) Stock Has 20% Downside

The recent bullish move in TWTR stock might ultimately prove to be the doing of aggressive traders, not a fundamentals-based recovery

Twitter Inc (TWTR)

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Twitter Inc (NYSE:TWTR) has suddenly caught fire — since hitting a low in mid-April, TWTR stock has gained about 35% or so. But it’s important to keep in mind that Twitter faces a laundry list of challenges, and this move more likely than not is a temporary thing.

Granted, Twitter’s latest earnings report was encouraging, at least on the grounds that it scored a first-quarter beat. But the bar was set low. Revenues came in at $548 million, and adjusted earnings came to 11 cents. The Street was looking for a mere $511.9 million on the top line and a profit of just a penny.

What had TWTR stock holders excited was the user base. Twitter added 9 million monthly active users, a 6% year-over-year rise to 328 million users. Growth was just 4% in the prior quarter.

Yes, some of this represents progress, but Twitter is still struggling. Compare the MAU growth to the most recent Facebook Inc (NASDAQ:FB) report, in which MAUs jumped an impressive 17% … to 1.94 billion! Why can’t Twitter, with its much smaller user base, ramp up by single digits?

Worse, Twitter’s top line was down 8%, marking Twitter’s first year-over-year decline on that front since joining the public markets. That came on an 11% drop in ad revenues.

What’s Wrong With TWTR Stock?

The results were puzzling considering what CEO Jack Dorsey noted in his shareholder letter:

  • Daily active usage increased by 14% on a year-over-year basis
  • There was over 800 hours of live premium video, such as from partners like Sky Sports, Billboard, Condé Nast and GLAAD.
  • TWTR has been implementing machine learning systems to improve the relevancy of tweets.

So why is Twitter having problems with monetization, and why is the company still far from GAAP profitability?

Also problematic is that Dorsey, also the head of Square Inc (NYSE:SQ), remains a part-time CEO. The C-suite is in shambles, with notable turnovers including:

  • COO/Head of Sales, Adam Bain
  • VP of Product, Kevin Weil
  • VP of Engineering, Alex Roetter
  • VP of Global Media, Katie Stanton
  • VP of Business Development, Jana Messerschmidt
  • CTO, Adam Messinger

However, the most worrisome issue for TWTR stock is that the company is essentially being marginalized.

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Article printed from InvestorPlace Media,

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