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Failed Twitter Inc. Stock Rally Spells Trouble for Tech

Social sites like Twitter have yet to deal with the consequences of their success

By Dana Blankenhorn, InvestorPlace Contributor


Twitter Inc. (NASDAQ:TWTR) stock seemed to rally near the end of November, rising to over $22 per share, but investor enthusiasm quickly waned and TWTR stock ended the month flat.

Failed Twitter Inc. (TWTR) Stock Rally Spells Trouble for Tech
Source: Shutterstock

There has been extensive debate about the rally, both while it was on and after it faded. Most of that has revolved around what it may mean for Twitter.

It’s more important to consider what it means for tech.

The rally was an exaggerated version of the action in other, similar stocks during the month, like Facebook Inc. (NASDAQ:FB) and Alphabet Inc. (NASDAQ:GOOGL, NASDAQ:GOOG). It makes sense it was exaggerated because Twitter is relatively small, a $15 billion market cap easily buffeted by strong winds.

The larger story is an ongoing cultural shift and a government reaction against the big techs that now dominate media, but refuse to accept their responsibility as media companies.

Whither Twitter

By looking only at Twitter’s price action, it is easy to come to strong conclusions.

The failed rally gave InvestorPlace‘s Chris Fraley four reasons to believe in Twitter stock for 2018, like the possibility it will charge for some services and the approval of President Trump. Chris Lau also likes changes that make it easier for advertisers to use.  There are even ultra-bulls who see it rising 1,000% from here. 

But Twitter still has fundamental problems. Josh Enomoto notes Twitter still has huge competitors who can bury it. Tom Taulli notes that Facebook and Google continue to take advertising share from everyone, including Twitter. This told Luke Lango to sell the highs, believing TWTR’s true value is closer to $16 per share than its present $22.

At $16 per share, Twitter would have a market cap of $12 billion, supporting $2.4 billion in 2017 sales (if its whisper number is to be believed). That would be about five times sales, against 8 times sales for Alphabet, or the 13 expected for Facebook.

Whither ‘Big Social’

The bigger problem is the growing backlash against big tech, especially social sites like Facebook and Twitter, in the public mind and the councils of government.

FCC chair Ajit Pai specifically called out Twitter in announcing his net neutrality deregulation. He claimed it has a viewpoint, which it uses to discriminate. He went further, saying “so-called edge providers” like Twitter, Facebook and Google decide what users will see, censoring pro-Trump administration content.

Leave aside whether he’s right. Pai’s attack on content providers may have been the most popular point he made. Both conservatives and liberals see discrimination in any attempt by algorithms to regulate what happens on social sites.

This is a natural outgrowth of social sites becoming the public square, while refusing to take responsibility for the consequences. Having destroyed the business models of newspapers, magazines and (increasingly) TV, sites like Twitter, Facebook and Google find themselves at the center of a political storm.

It’s not a coincidence that a film about The Washington Post, which fought an institutional war with itself over the Pentagon Papers, is being called the best film of 2017.  If a media site doesn’t stand for something, it will stand for anything.

The Bottom Line on TWTR Stock

Dealing with the sweet smell of success isn’t easy for anyone, whether an individual or a corporation. Closing corporate eyes to the consequences doesn’t make those consequences go away.

I got out of both Alphabet and Facebook earlier this year. The problems for Twitter, and other social sites, have just begun. Until they gain some backbone, avoid all these stocks.

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 [email protected] or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.

Article printed from InvestorPlace Media, https://investorplace.com/2017/12/failed-twitter-inc-twtr-stock-rally/.

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