Okay, put your political preferences aside for a minute. Donald Trump is unequivocally the most public, high-profile and perhaps influential person on the planet these days. When he talks, he makes news. And where does he do a lot of his “talking?” Twitter Inc (NYSE: TWTR), 140 characters at a time. Thus, as Trump’s profile has ascended, so has Twitter’s. Is it mere coincidence, then, that TWTR stock is having its best year as a public company in Trump’s first year as president?
Perhaps. The 7.7% return in TWTR this year could be a mere byproduct of a bull market. In fact, the gains in the Twitter stock price are paltry when compared to the 21% year-to-date gain in the Nasdaq or the 12.7% return in the S&P 500. But when compared to Twitter’s previous performance since going public four years ago, this year’s turnaround looks like a huge win.
In its three prior years trading as a public company, here were the annual returns for TWTR stock:
2014: -43.6%
2015: -35.5%
2016: -29.6%
The stock hasn’t exactly come roaring back this year, topping out at $20 in July, or less than half of its closing price ($41) on its first day of trading in November 2013. But TWTR has at least managed to stop the bleeding, and being constantly in the public eye can’t hurt.
TWTR Sales and Earnings Tumbling
Aside from the strength in the market, how else can you explain TWTR’s improvement this year? It’s certainly not sales, as the company’s revenues have actually declined in the first two quarters of 2017, just two years removed from growing as much as 74%. And the company is no closer to profitability, with losses of $0.16 per share and $0.09 per share in each of the last two quarters.
So, that brings me back to my Trump theory. Like Facebook Inc (NASDAQ:FB) before it, Twitter was already a wildly popular form of communication, instant reaction and breaking news prior to Trump taking office. Now it’s part of our everyday fabric. Even if you don’t use or don’t know how to use Twitter, you know what it is, thanks to the 45th president’s constant use of the platform. Whether you’re a millennial with an iPhone 8 or a 95-year-old with no computer, “tweeting” has become part of your everyday vernacular this year.
Because of that, Twitter has been the most talked-about company on the market since Trump took office. That kind of publicity may have been enough to convince some investors to take a flyer on a down-and-out stock despite declining sales and nonexistent profits.
Should you? Right now, no.
You Should Still Avoid TWTR
Despite this year’s modest improvements, for the reasons listed above, TWTR is still not a good candidate for bottom-fishing. No matter how often the president tweets or how fast its user base grows (it topped 328 million monthly active users in the second quarter, up from 313 million a year ago), until the company can combine double-digit sales growth with any kind of profits, the ceiling for TWTR stock is limited. If you believe consensus analyst estimates, that’s not expected to change until at least next year at the earliest.
So even if the leader of the free world likes to use Twitter, that doesn’t mean you should buy TWTR stock anytime soon.
As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.
