Twitter Inc. (TWTR) is a stock that investors either love or hate, and it’s safe to say my perspective is in the latter camp.
While I am a regular user of the social media platform, Twitter earnings keep proving that TWTR stock is a doomed investment that investors should avoid at all costs.
This is because while there is indeed merit in the platform as a consumer, the bottom line is still the bottom line. And in the lead-up to what is sure to be another ugly Twitter earnings report showing a lack of profits and rising costs, TWTR stock is not worth the trouble.
For the record, I thought Twitter stock was dangerous when I wrote about its troubles in July around $36, too, after the previous TWTR earnings report.
In case you missed those details, the problems are the same even now: the social media company doesn’t have the massive reach of rival Facebook (FB), doesn’t turn a profit and doesn’t have any kind of corporate strategy to make you think Twitter will correct either of those situations.
In other words, don’t be caught dead owning TWTR stock before Twitter earnings hit this week.
TWTR Stock Is Slowing, Not Growing
Twitter earnings provide stubborn bulls plenty of evidence that the tech company is slowing, not growing. In fact, last quarter, TWTR stock saw less than 3% user growth sequentially last quarter — a measly 7 million new users — and just 15% user growth year-over-year.
Though the total user base has flatlined, the social media company’s reach is still disappointing at just 316 million last quarter according to Twitter earnings.
Consider that last quarter Facebook hit 1.49 billion monthly active users, up from 1.44 billion in the previous quarter and almost 1.32 billion a year ago. That’s the same growth rate, at just over 3% sequentially and 13% year-over-year… but in regards to raw users, FB stock added about 15% of the entire TWTR audience (49 million users) last quarter and roughly half of the entire Twitterverse (~170 million users) in the last 12 months.
Even if you’re content watching TWTR stock lag dramatically behind Facebook forever, Twitter earnings show that as the growth rate is slowing to a crawl … the bottom line isn’t getting any better even if revenue is grinding higher.
Consider that in Twitter earnings for Q2, Total revenue was $502 million, an increase of 61% year-over-year from $312 million in 2014. But it’s important to note that the jump also came with a surge in the cost of revenue for Twitter — from $100 million to $168 million.
Not good for an unprofitable company.
Twitter Earnings to Validate Downtrend
There are half-baked “solutions” to this problem, of course, like doing away with a 140 character limit and experimentation with video via the Periscope app to boost engagement for TWTR stock.
There has also been clear desperation from the Twitter board, which first said it wouldn’t settle for a part-time CEO but then did just that in order to win over founder Jack Dorsey after a lengthy and unfruitful executive search.
You can talk big about a white knight riding in to save TWTR stock, with Google snatching up the company. But keep in mind that Alphabet‘s (GOOG, GOOGL) restructuring was about focus and profits, a mission to have individual subsidiaries that are eventually independent operators and not loss leaders. You think Twitter earnings will make Twitter stock more attractive under that mindset?
There’s also a crazy cohort that occasionally talks about boosting Twitter earnings by making the platform a subscription-based service akin to LinkedIn (LNKD). But without reach and with plenty of low-quality users spamming each other, this is a nonstarter. Besides, LNKD stock itself has been stuck in a rut for about two years, so this is hardly the example you want to aspire to.
Look, it’s not about the platform, which I truly do enjoy. And it’s not about badmouthing a company that tried to connect via mobile and social right out of the gate, and saw lots of user success but no material profits.
This is about investing, and the market right now, and with such a backdrop TWTR stock is just a bad investment … and you should fully expect Twitter earnings to validate this later this week.
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 [email protected] or follow him on Twitter via @JeffReevesIP.