Twitter (TWTR) is going to Hong Kong.
While it doesn’t have quite the same ring or cultural significance as Mr. Smith Goes to Washington, TWTR’s decision to open a Hong Kong office in early 2015 is a significant move in the right direction for investors. Beefing up its presence in Asia should help give Twitter investors what they all desperately seek: more monetization.
Why Twitter’s New Hong Kong Office is Important
As you may know, China is not the freest of societies. Its government doesn’t seem to put much stock in the concepts of things you and I might find meaningful — trivial things like knowledge, freedom and expression, for instance. If Plato admired it, China hates it.
This stance naturally makes TWTR a horrible fit for China. So horrible that China actually banned the website in 2009 because it suspected Twitter and Facebook (FB) were to blame for riots in its Xinjiang province. The “Arab Spring” — a string of revolutions against oppressive regimes in the Middle East and Africa that began in 2010 — didn’t help Twitter’s rep among Chinese authorities, as some of the riotous protests were organized through social media.
Basically, investors shouldn’t buy TWTR stock in the hopes that an office in Hong Kong will translate to Twitter being allowed in China.
“The real main focus of the office will be sales,” Twitter’s Vice President of Asia Pacific, the Americas and emerging markets Shailesh Rao told the Wall Street Journal.
While much of the bull case for TWTR stock rests upon the company’s explosive revenue growth — sales have grown from $28 million in 2010 to a projected $1.38 billion in 2014 — Wall Street is a hard contingent to please. Case in point: Twitter’s most recent quarter, in which sales soared more than 114% year-over-year. Investors yawned at the figure, rewarding
TWTR stock with a 10% selloff.
So while I don’t anticipate Twitter elbowing in on China’s dominant microblogging company SINA (SINA) with its Hong Kong move, the office will get the TWTR sales team closer to Asian advertisers seeking to go global on Twitter’s platform.
Perhaps this is the “change of narrative” that InvestorPlace‘s own Jeff Reeves mentioned as a critical aspect of TWTR stock — which is off more than 35% year-to-date — regaining popularity with Wall Street.
Unfortunately, and as Jeff noted in his unambiguously negative Twitter bashing yesterday, the stock still trades at more than 100 times forward earnings — an insane multiple that I couldn’t endorse even if you could tweet in China. (Which you can’t.)
So, until Twitter stock gets a lot less expensive, it’s best to just avoid TWTR.
As of this writing John Divine held no positions in any of the stocks mentioned. You can follow him on Twitter at @divinebizkid.
