Twitter (TWTR) has long been a burr under my saddle. I have been bearish on Twitter stock for some time (here, here and here are just a few examples over the last few months), so it was no surprise to me when the social media company made a big move down after earnings.
And I guess it also shouldn’t be a surprise that the bulls are still insisting that TWTR stock is a bargain here, either because of growth potential or because of theoretical buyout hopes.
But it’s a pipe dream to think Google (GOOG, GOOGL) or Microsoft (MSFT) or whoever would spend $20 billion to $25 billion for Twitter here. In fact, even if I had 30 bucks or so of someone else’s money, I wouldn’t waste it on a single share of TWTR stock.
Here’s why:
TWTR Stock – No Profits, No Growth, No Strategy
The triple whammy Twitter stock can’t overcome is pretty straightforward: The company is unprofitable, is seeing user growth flatline and has no real plan to change the story.
As a result, TWTR stock is at best going nowhere … and at worst going to tumble as investors stop paying a premium to own this dog.
Regarding profits, don’t believe all the headlines about EPS. Those are non-GAAP numbers, and Twitter has never technically turned a profit ever. In a high-growth company, you can quibble over the calculations — something I am willing to do with momentum darling GoPro (GPRO) right now thanks to impressive movement in both the top and bottom lines.
But when you’re struggling, you don’t get the benefit of fuzzy math.
Regarding future prospects, TWTR stock showed almost zero growth in its core user base — and forward guidance was equally depressing. There is hope for modest revenue growth, yes, but the rate of that growth is down big-time from previous quarters.
Worst of all, the ship is still being manned by a temp. Twitter is without a permanent CEO, and while some think Jack Dorsey could stick around, his role running payments company Square prohibits him from taking the job — and leaving early would muck up a potential Square IPO (and probably a massive payday) for Dorsey.
So there you have it: No profits, disappointing growth and no way out.
No wonder Twitter is struggling. If investors are hoping for a dead-cat bounce, they might get a small one — but I would sell TWTR stock into that ASAP. There is no acquisition or serious change on the way at Twitter that will fix this battered tech stock.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP.
