The Future of Twitter Inc (TWTR) Stock Is Garbage

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After a flurry of activity in which three big potential suitors were allegedly making buyout offers for Twitter Inc (NYSE:TWTR), the drama has concluded anticlimactically — nobody bit.

The Future of Twitter Inc (TWTR) Stock Is Garbage

Twitter stock had soared about 33%, from the $16 range to the $24 range, as bids were supposedly being fielded from several major Big Tech players, including Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL), Walt Disney Co (NYSE:DIS) and Salesforce.com, inc. (NYSE:CRM).

Readers of my column know that I think Twitter stock is a disaster because it doesn’t make any money, despite having this massive user base. I said that the only reason to invest in Twitter stock was for a buyout, and that any buyer would likely overpay.

I said that when the stock was at $20, and that a buyout would be in the mid-$30s. Then Twitter fell to $16. I’ve been away in Italy so I couldn’t file a story telling you, when Twitter stock hit $24, to sell sell sell!

Considering its market valuation at that price, bid up in anticipation of a deal, I wouldn’t have expected a deal to go off at too much higher a price.

Well, it turns out that all three suitors dropped out and Twitter stock dropped along with them to around $18 where it currently sits. There were two things I expected any buyer to have a problem with, although I didn’t expect Alphabet to drop out.

What’s Wrong With Twitter Stock?

First, TWTR hasn’t figured out how to effectively monetize its user base. I thought if any company could figure it out, it would be Alphabet. Yet it bailed.

I never expected Disney to get involved, to be honest. Alphabet had the cash to make the purchase. Disney did not. It would mean either substantial stock dilution or even more debt, and Disney’s debt load is already pretty high.

Salesforce made sense, but the nagging second reason for a decline apparently turned out to be true. Apparently, the hatefulness that many Twitter trolls (and regular users) have been engaged in made Salesforce queasy.

I’m not intending to be deliberately political here, but TWTR has repeatedly censored high-profile conservative accounts. As a private company, it has that right, but it also runs contrary to the notion of free speech.

It’s likely that once Salesforce got a look at just how much censorship occurs on Twitter, and the extensive body of hate speech that is contains, it decided that wasn’t going to be a business it wanted to be a part of.

Thus, the story dovetails perfectly with other articles admonishing CEOs on getting involved in politics. It hurts the company, and in this case, I believe it cost TWTR one heck of a buyout.

I now believe Twitter stock is in trouble. Yes, there’s plenty of cash there. Yes, it is generating revenue. After all this time, however, there is still no vision for the company. Now it also appears there is no buyout.

Might another suitor come forward? Yes, I think one will, but not for some time, and not before TWTR falls much further. At some point, I do think someone steps in for that user base, but overpaying for it seems increasingly unlikely.

If you got caught in Twitter stock during the frenzy, and you still own it, I think the only way out is to repeatedly sell covered calls against your position. It’s unlikely the stock will get called away, so perhaps over several months, you collect enough in premium to offset any losses you may have.

Lawrence Meyers is the CEO of PDL Capital, and manager of the forthcoming Liberty Portfolio stock newsletter. As of this writing, he has no position in any stock mentioned. He has 22 years’ experience in the stock market, and has written more than 1,600 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/10/twitter-inc-twtr-stock-crm-dis-googl/.

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