It’s been a wild ride for Twitter (TWTR) since its IPO back in November. Since then, TWTR stock has racked up total gains of almost 120%, but it hasn’t been a straight line. That figure includes recent pressure from its fourth-quarter earnings report that cut shares by nearly a quarter, and a 15% rebound since then.
Meanwhile, skepticism about Twitter remains — at least on Wall Street. Of the 29 analysts covering TWTR stock, only six have “buy” or equivalent ratings.
So are the analysts on the right path in thinking that Twitter stock could see even more pain ahead? Or is the bearishness overstated, and thus, is a jump into TWTR warranted right now?
To see, we’ll look at the pros and cons of Twitter stock:
TWTR Stock Pros
Monetization: Not long ago, Twitter was considered a plaything — something fun for people to waste time on, but nothing that would generate much money. Lately, we’ve been proven wrong. The company has been quite effective in selling advertising, specifically via promoted tweets. TWTR revenues soared in Q4 by 116% to $243 million to crush Wall Street’s expectations, and the company even posted a 2-cent profit, which also surprised analysts who were looking for a 2-cent loss. Maybe those original assumptions were foolish. After all, Twitter CEO Dick Costolo has a strong business background, with a focus on the online advertising industry. He has put that to work in Twitter products include TV Conversation Targeting, Tailored Audiences, Conversion Tracking and Promoted Accounts in Timeline. Twitter also purchased of MoPub, a mobile ad network that allows Twitter to generate revenues by taking a piece of the ads from third-party sites.
Mobile: Twitter has been a mobile-first company since inception eight years ago, when it started with SMS messages (hence the 140-character limit). Recently, mobile monthly active users hit 187 million at the end of 2013, representing 37% year-over-year growth. And about 76% of the company’s MAUs are on mobile devices. In other words, TWTR has a huge opportunity to benefit from the secular trend in mobile — according to Gartner, the global ad market is forecast to grow from $13.1 billion in 2013 to $41.9 billion by 2017.
Second Screen: Another way to tap into ads is the “second screen” — essentially, the use of a tablet or smartphone while watching traditional TV. If you’ve ever scanned your Twitter account while watching a hit show, you know exactly how this works … and the opportunity is huge here, too. The traditional television ad market is a whopping $66 billion in the U.S., and some of that could spill its way down to the second screen. Twitter already is getting traction, having snagged deals with the NFL, CBS (CBS) and Comcast’s (CMCSA) NBC.