Twitter Inc.: TWTR Stock Just Blew a Great Chance for a Breakout

Advertisement

It’s not the extra compensation that Twitter Inc. (TWTR) is shelling out to stanch its brain drain that’s weighing on TWTR stock. It’s the desperation.

Twitter Inc.: TWTR Stock Just Blew a Great Chance for a BreakoutThe Twitter stock price has lost more than 60% over the last 52 weeks. No wonder employees are bolting.

Silicon Valley is full of hot startups like work-collaboration software maker Slack and ride-hailing service Lyft. Why should investors stick with a company that’s struggling to grow its user base and is letting workers go?

TWTR is handing out restricted stock to talent to keep them from walking out the door, according to a report in The Wall Street Journal. Investors are right to acknowledge that additional compensation eventually comes out of their earnings per share.

Moreover, this is a risky way to sweeten the pot. The actual compensation costs of stock awards can’t be known until they’re exercised, and TWTR has a lot of stock-based compensation costs already. As WSJ notes:

“Of the 172 U.S. tech companies with at least $1 billion in revenue last year, Twitter had the highest stock-based compensation costs as a percentage of its revenue at 30.8%, according to data provided by S&P Capital IQ. That is nearly double Facebook’s 16.6% and four times Google parent Alphabet Inc.’s 7%.”

But the increased employee expense is nothing compared to the way this move sours market sentiment on Twitter. It only confirms suspicions that it has become unmoored, morale is plummeting and the rank and file have lost faith.

Bad Timing for TWTR Stock

That’s not exactly a winning combination if you’re trying to figure out how to rejuvenate and monetize a disappointing social media platform. It’s the whole rats-leaving-a-sinking-ship thing.

It’s also not helpful that market reaction to the compensation report came at a technically bad time for Twitter stock. This thing has been in a downtrend since May and the selling on the news scuttled a new chance to arrest the slide.

TWTR
Click to Enlarge
The Twitter stock price failed to break out from resistance at its 50-day moving average thanks to the compensation issue. Hell, this is the third failed breakout for TWTR in the last year.

And all of this comes about a month after TWTR hit an all-time closing low. Shares looked like they’d put in a bottom, but now all bets are off. And even if it can find support at that low, stockholders are still looking at a drop of about 17% from here.

Sentiment on TWTR stock is already quite tepid. Shares go for just 22 times forward earnings despite a presumed growth rate of nearly 50% per year. News of the company scrambling to stuff up a brain drain isn’t going to make anyone feel more optimistic about the company’s prospects.

Hey, TWTR might be the bargain of the century at current levels, but probably not. The fundamentals aren’t there and, increasingly, neither is the talent.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

More From InvestorPlace


Article printed from InvestorPlace Media, https://investorplace.com/2016/03/twitter-stock-twtr-brain-drain/.

©2024 InvestorPlace Media, LLC