Does that drop indicate a buying opportunity, or should investors still hold off on Twitter stock?
There are certainly some positive factors to consider with TWTR stock. Wall Street analysts are getting enthused. Just took at look at MKM Partners’ Rob Sanderson. He recently boosted his Twitter stock price target from $50 to $72 because of the strong revenue momentum. Given the rapid shift to mobile, this is likely to continue, at least in the short run. The growth rate in the fourth quarter was an impressive 116%.
Twitter is also attracting some top-notch talent. To this end, the company snagged a former executive at Google’s (GOOG) YouTube, Baljeet Singh. He will be a product director for the revenue division. Let’s face it, video is becoming a critical part of mobile. It’s a market that should give TWTR stock a boost.
Then there is another area that could produce lots of revenues for TWTR stock: foreign markets. Consider that about nearly three-quarters of the user base is outside the U.S. Yet only about a quarter of revenues come from international markets.
To capitalize on this, TWTR has invested heavily in its infrastructure. For example, it now has 15 foreign offices, with a big emphasis on Europe and Asia. It also looks like TWTR will increase its acquisitions of ad companies and get more aggressive with partnerships.
Interestingly enough, Asia may offer opportunities for non-advertising revenue sources as well. As seen with popular apps like Tencent’s WeChat, users are willing to pay money for things like stickers and games.
That’s all fine. But there as still some good reasons that TWTR stock could continue to slump. After all, there is still much concern about the user growth. In the fourth quarter, the company added a mere 9 million monthly active users, and only 1 million of them came from the U.S. The increase came to a meager 3.8%, which was far off Q3′s 6.4% user improvement.
In comparison, WhatsApp is getting 1 million users per day, and the base is well over 470 million. So it should be no surprise that the company was bought by Twitter’s mighty enemy, Facebook.
In fact, the competitive environment is get more intense. Apps like WhatsApp, SnapChat, WeChat, Line, Weibo (which plans to go public soon) and Kakao may be taking away users from Twitter. This is certainly a grim prospect, and could make for another tough quarterly report for TWTR (which should happen in a couple months).
Another thing to watch for: On May 6th, the largest part of the lock-up for TWTR stock will expire, which will allow insiders and employees to sell up to 480 million shares. While not all will come on the market, there is still a good chance there will be heavy selling.
So, even though TWTR stock has nice opportunities in foreign markets and looks more attractive because of the recent drop, investors may still want to be cautious.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.