For the year so far, Twitter Inc (NYSE:TWTR) stock has pulled off a decent performance, with the shares up about 8%. Granted, it is nowhere near the blistering return of Facebook Inc (NASDAQ:FB). But hey, TWTR stock is not in the dumps like Snap Inc (NYSE:SNAP) either.
So maybe there is an opportunity here? Perhaps the TWTR stock price today represents a good value?
Well, I’ve been a bear for some time. And for the most part, there is little to convince me to move off this position. The fact is that TWTR stock is likely to face ongoing pressures.
Even though the social network has President Trump highly engaged, there hasn’t been much of a boost to the user numbers. During Q2, the MAUs (Monthly Active Users) flat-lined sequentially and there was a mere 5% increase on a year-over-year basis. The US market also suffered a decline of 2 million users. The unfortunate reality is that the stagnation has been a long-term problem. It does not matter that TWTR has done such things as rollout premium video, improved the user experience and has forged partnerships.
So what’s wrong? If anything, there are various factors at work. Yet I think the biggest one is the management. After all, CEO Jack Dorsey is spending half his time at the TWTR since he is also at the helm of another public company, Square Inc (NYSE:SQ). Just imagine if Mark Zuckerberg did the same thing? Would he have been able to transition the company to mobile? Would he have been able to fend off Snap?
Probably not. In today’s fiercely competitive markets, the CEO must be fully engaged. It’s not a side business.
But the management problems have not just been about Dorsey. TWTR has also had a long history of turnover. For example, some of the recent departures include key positions like the vice president of finance and the vice president of live video engineering. Without stability in the executive suite, it’s extremely tough to innovate and find new sources of growth.
The Financials for TWTR Are Getting Dicey
Another ominous sign for the TWTR stock price is the sudden fall in revenues. During Q1, there was a 9% drop, which was then followed by a 5% decline. TWTR management also indicated that the sluggishness is likely to continue for the second half of the year.
As should be no surprise, it has been a challenge to attract advertisers because of the problems with the user base. The result is that a better option for advertisers is to increase budgets for platforms like FB and Alphabet Inc (NASDAQ:GOOG).
Interestingly enough, there are signs that the ad market is facing a general downturn. This is certainly the sentiment from the world’s largest ad agencies — like Interpublic Group of Companies Inc (NYSE:IPG) and WPP Plc (ADR) (NASDAQ:WPPGY) — which recently posted sub-par results. So if there are sharp cutbacks, TWTR will probably feel the pressure too.
Bottom Line On The TWTR Stock Price
TWTR is increasingly being marginalized. The company is going down the path of companies like AOL.
Because of this, TWTR really has few options to get back on track, especially since the company has fairly limited resources. Here’s how Jefferies analyst Brent Thill recently put it: “Twitter’s push to be a digital live video provider is interesting, but we note that bigger competitors such as Facebook and Google have much stronger digital video propositions for advertisers with much larger and more engaged user bases, deeper granular data for targeting, and proven return on advertiser investment… We believe that this turnaround will take longer than initially expected.”
What’s more, the TWTR stock price is still far from cheap. Consider that the forward price-to-earnings multiple is 50X. Yes, this very expensive for a company that is, well, shrinking.
Tom Taulli runs the InvestorPlace blog IPO Playbook and is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.