You can always put lipstick on a pig. But … it’s still a pig.
On a related note, Twitter Inc (TWTR) stock has been on a tear this last week, ripping off 20% gains in the last five days after the company named co-founder Jack Dorsey the permanent CEO, a Saudi Prince increased his stake in the company and a new initiative known as Project Lightning debuted.
Even after the rally, TWTR stock is off 35% in the last year, as disappointing user growth metrics refuted the stock’s impossibly optimistic valuation.
Unfortunately for shareholders, Twitter is still incredibly overvalued, and while Project Lightning should be a net positive, it’s naive to think that it can turn the whole business around.
A Superficial, Short-Term Fix
If managing expectations was partially to blame for the horrendous performance of TWTR stock in the past, what should we make of the fact that WIRED already came out and dubbed “Moments,” the new site feature that was internally called Project Lightning, “Twitter’s Most Important New Feature Ever.”
Let’s not get ahead of ourselves.
Moments is essentially the execution of a common-sense idea that Twitter should’ve had for years now. It allows users to follow trending stories by accumulating top posts, pictures, videos and tweets on the topic and displaying them in a centralized location. It’s the hashtag with less noise and more visuals.
Investors are forgiven for thinking that Project Lightning could inject some life into TWTR stock. It was specifically designed to make the site more user-friendly and easier to engage with. Hypothetically, it’ll help reignite user growth numbers as the social network becomes less intimidating for the tech-challenged among us.
Increasing user growth rates shouldn’t be that hard to do, considering that monthly active users (MAUs) have been more or less entirely stagnant recently. In its second quarter, TWTR had 304 million MAUs. The quarter before? It had 302 million.
To understand exactly why that number is so pitiful, all you have to do is look at Facebook‘s (FB) numbers. Despite having more than four times as many users, FB was still able to grow MAUs from 1.44 billion to 1.49 billion in Q2, a quarter-over-quarter growth rate of 3.4% — five times the 0.7% growth seen by TWTR in the same period.
So yeah, Project Lightning should help Twitter grow users by more than 0.7% every three months. If it doesn’t, TWTR stock is seriously — perhaps irreparably — screwed.
But there are a few things Project Lightning won’t do. It won’t convince Alphabet Inc (GOOG, GOOGL) to acquire it, which is an absolute pipe dream. It won’t make Twitter profitable on a GAAP basis anytime soon. And it doesn’t change the fact that with TWTR stock fetching nearly 50 times forward (non-GAAP) earnings, shares are still a rip-off.
Principled long-term investors shouldn’t make this the “moment” they abandon reason and plow into a speculative position in TWTR. It remains a dumpster fire.
Or a glammed-up swine, if you prefer to be diplomatic.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at email@example.com.
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