Twitter Inc‘s (NASDAQ:TWTR) earnings report after Thursday’s market close is the first one since TWTR failed to find a suitor to snap up the troubled social media platform. It could get uncomfortable.
True, there’s some chatter that Japan’s SoftBank Group Corp (OTCMKTS:SFTBF) could have interest in an acquisition of Twitter. But even if that’s the case, it’s not like TWTR is in a strong position to negotiate when seemingly every big-name deal partner has dropped out.
Indeed, the list of companies reported to have at least some interest in Twitter reads like a who’s who of tech, media and telco names. Salesforce.com, inc. (NYSE:CRM), Walt Disney Co (NYSE:DIS) and Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) were said to have the most interest, but guesses extended to Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT) and Verizon Communications Inc. (NYSE:VZ), too.
If anyone steps forward to buy TWTR, it’s not exactly going to face a bidding war.
Twitter can’t count on a takeout and the fact that it’s even looking for one says something very pessimistic about management’s hopes for turning this thing around.
As much as Twitter has garnered applause for its livestreaming — notably its deal with the National Football League — it hasn’t been the game changer TWTR so desperately needs.
The service has struggled to grow its base of active users into anything like the scale enjoyed by the digital-ad duopoly of Alphabet’s Google and Facebook Inc (NASDAQ:FB). As popular as Twitter may be, user growth stalled out after crossing 300 million. That’s a large number, but it doesn’t count as mass market in the industry. For example, Facebook has 1.7 billion active users. Google search claims 1.2 billion users. Instagram counts more than half-a-billion.
Just as disconcerting, Twitter is struggling to monetize the relatively little audience it does command.
TWTR’s Top Line Keeps Cooling Down
To be sure, Twitter’s top line is still growing, but the rate of growth is in serious trouble. In fiscal 2015, Twitter’s total revenue increased more than 50%. That’s spectacular. This year, it will only grow about 15%. That’s a no-no for what’s supposed to be a momentum stock trading at 30 times forward earnings.
That helps explain the head-scratching valuation on TWTR stock. Ordinarily a stock trades at a premium to its compound annual growth rate forecast. In Twitter’s case, that’s reversed. Sometimes that means a stock is cheap. Sometimes it means it’s cheap for a reason.
For the most recent quarter, analysts on average expect Twitter earnings to come to 9 cents a share, down a penny from the same quarter last year, according to a survey by Thomson Reuters. Revenue is forecast to increase just 6.5% to $606 million. Yikes.
Now that all these potential deal partners have made it clear they have no interest in Twitter — at least at anything near its current price — TWTR stock has gone back to being a dog. It’s off about 22% for the year-to-date.
Bottom Line on TWTR Stock
Keep in mind that the only time Twitter stock showed signs of life this year was on M&A rumors. Fundamentals are deteriorating and management’s strategy for a turnaround looks like nothing more than a lot of spitballing. Even the technicals are uninspiring.
Click to Enlarge Shares failed to find support at their 50-day moving average after it was clear no one wanted to buy the company.
Shortly thereafter, TWTR fell below its 200-day moving average, too. It has since broke above that key level, but not convincingly. And even if it does find support at the 200-day MA, the trend there is still down.
If Twitter’s able to somehow serve up a beat-and-raise quarter, any upside catalyst will be nothing more than a trade, subject to petering out before you know it.
After failing to find a partner, it’s clear no one wants Twitter, so why would you?
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
