Twitter Inc. (NYSE:TWTR) has had a rough 2016. A look at TWTR stock charts show stock is trading in a narrow channel between its 50- and 200-day moving averages, with nary a catalyst in sight to fuel a breakout.
So it goes with a name that’s looking to trade sideways for a while, at best.
Twitter stock popped a week ago when activist hedge fund Jana Partners took a small stake in the troubled social media platform. It was immediately bottled up at its 50-DMA, however. Resistance at the key level looks like it will be a hard nut to crack.
On the other hand, it’s not like there is anything glaring in the chart that points to imminent downside. Twitter’s relative strength indicator and MACD readings indicate that the current trend of flat action isn’t going anywhere for the time being. That’s preferable to another TWTR stock selloff, but hardly makes it a buy.
The reality is Twitter’s long-term prospects are not strong and in the shorter term it has nothing to shake it out of this rut. The service made a big deal about cracking down on hate speech in wake of the presidential election, but so what? That’s not going to make it suddenly attractive as an acquisition target.
It’s also likely far too late to address Twitter’s core issue: It’s appeal as a social media platform is limited and comes up well short of necessary mass market levels.
Perhaps there was a window when Twitter could have managed a Facebook Inc.-like (NASDAQ:FB) explosion in user growth. Had it been able to reach such lofty levels it might have found itself on the inside looking out of the FB and Alphabet Inc. (NASDAQ:GOOGL) Google digital ad duopoly. That window is now closed.
TWTR Is Past Its Prime
Not only has user growth all but come to a halt, but TWTR is being topped by newer players such as FB’s Instagram and Snapchat. At 300-plus million monthly active users, TWTR is rapidly becoming an also ran.
FB and Google have a combined user base of several billion. Snapchat already has more daily active users than TWTR and that growth is accelerating. What appeal does TWTR have as a destination for ad spend against such competition.
Click to EnlargeThe evidence is mounting that TWTR has as many users as it’s ever going to get. It’s simply reached the zenith of its popularity. Sure, Twitter has to cut costs in the face of such sluggishness — it’s corporate management 101 — but that’s not going to make it attractive to a buyer in and of itself. It needs a new growth strategy. Without one, TWTR stock has to be discounted for either flat growth or even the dreaded retreat in active users.
After all what’s the right price to pay for a no-growth, net-loss company that’s being crushed by the mainstays of its industry and lapped by the upstarts?
This is just a lengthy way of saying that there is no fundamentally compelling reason to buy Twitter stock at current levels. And there’s no technical reason to be optimistic at the moment either.
Twitter hasn’t traded above its initial public offering price of $26 for a year now. The only time shares really went anywhere was when the market was rife with acquisition rumors. Note carefully however that even when speculation was at its peak, TWTR stock never broke above the IPO price. It’s like investors are kissing off all the market value lost since the company went public and will just be happy if they get out close to breakeven.
Perhaps 2017 will be kinder to Twitter shareholders but there’s no reason to think so. Any new capital committed to this name is throwing good money after bad.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
