Twitter Inc (NYSE:TWTR) has a market capitalization of $12 billion. It has never made money, and its growth is slowing. It has $1.654 billion in debt, so its cost to a buyer, at the present price, would be $13.5 billion. That’s about $19 per share, without any sort of premium, for a company that trades at $17 per share.
This for a company with revenue of about $2.4 billion per year, meaning it would be dilutive to earnings.
Twitter does have positive operating cash flow — about $250 million worth for the first nine months of the year. But if you want to buy anything for 40 times cash flow, I have a bridge to sell you.
TWTR stock is held up mainly on the promise that someone with deep pockets is going to buy it. Everyone with deep pockets is mentioned — Alphabet Inc (NASDAQ:GOOGL), Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT) and even Walt Disney Co (NYSE:DIS).
None of these worthy folks are interested, of course, because Twitter has more baggage than a thrice-married adult film star with three children. And now it has dumped the only thing which, I thought, made the company worth buying in the first place: its Fabric development team, which Alphabet just took for an undisclosed price.
UBS recently downgraded the stock. If I were going to trade Twitter stock, I’d sell it short.
Missing the Model
Twitter has missed its model and has no way of returning to it.
The model is Weibo Corp (ADR) (NASDAQ:WB). Weibo, a Chinese company, is like Twitter a “micro-blogging” platform, based on the Short Messaging Service (SMS).
If you’re old enough to have had a flip phone, you remember SMS. Once you could send SMS messages to people using any carrier, it was a valuable service. It was a great way to stay in touch with friends.
Weibo understands something that Twitter long ago forgot. The “in” in “internet” stands for “interactive.” The most valuable online services are two-way conversations, not one-way broadcasts.
Weibo is an interactive service. Weibo lets friends quickly decide which movie or restaurant to go to, what’s hot in town and what is worth talking about. It is not, like Twitter, a one-way news service through which celebrities talk down to their audiences, or through which trolls can abuse people.
That’s how WB is pitched to China’s consumers. And, guess what — Weibo is making money. It made $32 million during the third quarter of 2016 alone, on revenue of $176.55 million. As Louis Navillier wrote here in December, “Weibo is China’s Twitter, Except You Should Actually Buy It.”
Twitter long-ago let itself become captive to celebrity culture. Worse, it did so without giving celebrities the tools with which to interact with their audiences. That made it a one-way medium. Great for Donald Trump, not so great for Leslie Jones.
As President of the United States, moreover, Trump no longer needs Twitter. He doesn’t need the megaphone anymore.
The basic Twitter service is becoming worthless.
TWTR Stock Has Nothing Left
Once upon a time, I was a Twitter bull. In 2014, I called it “the most misunderstood company in tech.” The key to profits, I wrote, was Fabric, whose apps let mobile developers analyze software crashes, register users with just a phone number, and give small businesses direct access to Twitter’s ad network.
Google is taking the Fabric team and combining it with Firebase, which it bought in 2014. Firebase is a unified app platform, and Fabric will fit neatly into it, helping Google attract developers who want to write apps for both Android and Apple’s iOS. For Google, it’s a “snip,” a cheap, quick, worthwhile deal. It will keep the Fabric team employed and together.
Meanwhile, Twitter has abandoned commerce and is going through yet another turnover of top management. It became a media company, was used for political power as a media company, getting nothing for it, and is now being dumped by the people who made it famous. Twitter has had its 15 minutes of fame.
What’s left of Twitter is a fad, a joke, and worthless. A-list celebrities are going to abandon it because there are other ways of broadcasting. B-list celebrities are abandoning it because Twitter lacks tools to protect against abuse.
As celebrities disappear, everyone else will. That means holders of TWTR stock, too.
Dana Blankenhorn is a financial and technology journalist. His latest novel is Bridget O’Flynn vs. Something Big & Ugly. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he did not hold a position in any of the aforementioned securities.
