The recent earnings surprise at Twitter Inc. (NASDAQ:TWTR) (it almost broke even) generated a quick gain of nearly 25%, as the shares rose from just over $17 per share to nearly $22.
By Nov. 1, however, this had already begun to reverse, and as trading opened the stock looked set to open at $20.67. From a technical perspective, the fight is on to hold $20 per share.
But should it?
Since it came public in 2013, at the height of the social media boom, Twitter has never made a profit. Its first trade back then was at about $41 per share, and it now trades at half that. Its peak price of $69 per share, achieved as 2014 opened, now looks as remote as any of the highs achieved during the Internet bubble at the turn of the century.
Twitter as Media Without Media
Like Facebook Inc. (NASDAQ:FB) and Alphabet Inc. (NASDAQ:GOOGL), which also had their lawyers on Capitol Hill for Halloween, Twitter is a media company that pretends to be a tech outfit so it won’t have to take responsibility for what it puts out.
The result is that Twitter is controlled by propagandists, not management.
Whoever shouts the loudest, whoever can organize the largest mob behind them, whether real or bot, can drown out everyone else. It’s “the press” as it was in the first decade of the Republic, when politicians controlled publishers and “journalism” was a partisan tool for men like Alexander Hamilton and Thomas Jefferson.
Compared with its fellow sharks, Twitter is a minnow. It is highly unlikely to equal 2016’s $2.529 billion in revenue. Through the third quarter of 2017, revenue was $1.71 billion. Hope hinges on the operating cash flow line, $763 million during the quarter, and its husbanding of cash. At the end of September, Twitter held almost as much cash, $1.586 billion, as it did long-term debt, $1.690 billion.
To achieve these results, Twitter has mostly run on auto-pilot. General expenses were $236 million for the third quarter, down from $291 million for the same quarter in 2016. Research costs have also been cut, from $177 million in the third quarter of 2016 to $136 million in 2017.
For that money, Twitter can’t afford to hire human beings to vet what goes over its servers, let alone computers that can vet what bots may deliver. The solution it has proposed to its current problem, identifying political ads as ads, is laughable when the problem is what a publisher would call its editorial.
Twitter’s Problem More Than Financial
What politicians have learned is that the feature social media is most proud of, that computers scale where people can’t, is also a bug. When Twitter does attempt human intervention over its content, it pleases no one.
The issue before Congress is whether Twitter, and other social media, allowed Russia to hack the 2016 election. But all elections remain subject to hacking when Twitter treats truth as a matter of opinion. Saving money on editorial let Twitter destroy real editorial businesses, which become mere grist for its automated mill.
But this is more than just a financial issue. It’s easy for me to write, “don’t buy Twitter.” It doesn’t make any money, it never has, and it may never make any in the future. But Twitter’s lazy attitude is now a threat to its own business interests, as the Congressional hearing demonstrated.
You don’t want to buy into a company that can’t defend itself, not at any price.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this article.
