At this point, after all its potential suitors ran away screaming, and the world has discovered that Twitter Inc (NASDAQ:TWTR) is a cool but not essential toy, TWTR stock probably has a ceiling very close to today’s price.
![Why Twitter Inc (TWTR) Stock Is Still Stuck in the Mud](https://investorplace.com/wp-content/plugins/lazy-load/images/1x1.trans.gif)
I decided to pull apart the metrics for Twitter based on its 10-K, and found that they really are just terrible, and I’m convinced that the only survival chance for it in the long-term is to be purchased at a fire sale price, or if some visionary comes along and finds a way to monetize it in a more effective way.
Is TWTR Stock as Ugly as You Think?
If we look at FY13 through FY16, we see some pretty lousy metrics. Revenue more than doubled from $665 million to $1.4 billion from FY13 to FY14, but then it grew by about 55% into FY15, but only by 14% in FY16. Even worse, year-over-year Q1 revenue fell by 8% this year.
Over that same period, operating expenses grew from $1.3 billion to $2.9 billion. It’s a pretty sad tale when revenue can grow fourfold over this entire period, yet the net loss only improves from a $645 million loss to a $457 million loss.
The most important metric for TWTR stock is probably monthly average users (MAU’s), and the numbers there are not so great either. Again looking at Twitter 10-K reports, we find 131 million monthly average users in Q1 of 2012 exploding by almost 50% over the next year. Yet it took three more years for those numbers to grow by another 50%. YOY for FY15 to FY16, MAUs only grew 2%.
Now, when you combine the drastically slowing MAU growth with the huge increase in operating expenses, a terribly grim picture starts to emerge. Think about this. The company isn’t growing now because people just naturally want to join Twitter. It is barely growing despite the enormous amount of marketing and sales capital that is being deployed.
What this tells us, as investors in TWTR stock, is something is fundamentally problematic with Twitter. It’s cool. It’s fun. It is a great way to disseminate information instantaneously. It’s a nifty way to propagate political messaging and narratives. It can be used effectively in certain types of marketing.
Bottom Line on Twitter Stock
However, it is not indispensable. It isn’t even necessary. Imagine life without Twitter. Would it matter to you? Would it matter to anyone? No.
This is in stark contrast to Facebook Inc (NASDAQ:FB). Were Facebook to vanish, people might be unhappy but something else would replace it, just as it replaced MySpace. The key with Facebook, though, is that while it isn’t indispensable, it is a significant player in individual communication. Because of this, the platform itself is now the primary play in digital display advertising.
Now, were Facebook to suddenly implode because, say, there aren’t nearly as many users as is claimed, then Twitter might suddenly have relevance (assuming its numbers aren’t fudged, either). This seems unlikely.
Twitter stock has one thing going for it: It has $3.94 billion of cash on hand. It carries $1.6 billion in debt at about 6%, which sucks about $100 million away in interest. However, that $100 million means little when the company is losing a half billion dollars a year.
Still, with that cash position, and now apparently running cash flow positive, Twitter isn’t going to go bankrupt as long as it can generate free cash flow. But what is TWTR stock worth when it continues to lose money, its user growth stagnates and effectively churns its annual net loss through its free cash flow? It isn’t worth $12 billion.
I think the only thing you can do is swing trade TWTR stock, and that might be something I consider for my stock advisory newsletter, The Liberty Portfolio.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance. As of this writing, he had no positions in any stock mentioned. He has 22 years’ experience in the stock market, and has written more than 1,600 articles on investing. He also is the Manager of the forthcoming Liberty Portfolio. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.