Remember when everyone was atwitter over the possible acquisition of Twitter, Inc.(NASDAQ:TWTR)? Remember how all the suitors ran away? That’s never going to change or, if it does, an acquisition of TWTR stock will likely be for much less than the current market price.
Most of the suitors bailed because of the way the platform itself is utilized. As psychologist Stanley Milgram discovered in his famous experiment, if you permit people to do heinous acts, they will increase the intensity and cruelty of those acts when shielded with a cloak of anonymity.
Hello, Twitter.
Censorship Issues
Worse, TWTR has been exposed recently by Project Veritas, revealing that Twitter has been censoring and shadow banning conservative voices. Why would any buyer want to purchase a company that is alienating vast numbers of both tweeters and readers? Talk about lousy business execution!
I also continue to believe that a significant number of TWTR users are fake. Twitter itself has admitted it. We know there are bots attempting to skew public political opinion and, with regard to celebrity followers, the phonies may number in the millions.
Which would mean that the amount that advertisers are paying for Twitter followers is far higher than it should be. Meanwhile, TWTR stock is artificially high not only because of unearned fees, but because it is being supported despite growing net losses.
Net loss for 2012-2016 is as follows:
2012: $79 million
2013: $645 million
2014: $578 million
2015: $521 million
2016: $457 million
For the trailing twelve months, it was $336 million. Should TWTR stock shareholders be happy that these massive losses are getting smaller? No, although clearly they are happy that cash flow is now positive, and TWTR stock has $4.25 billion in cash against $1.7 billion in debt. This comes even as revenue has flat-lined in terms of growth.
Will Twitter Be Bought Out?
Is there any hope at all for a buyout? Given the tax cut and the repatriation of foreign cash by many large companies, it’s always possible a new suitor emerges. TWTR stock has tried to switch over to a self-service advertising business. Advertisers can purchase ads through an auction platform and TWTR can cut costs by not using sales teams.
Management also hopes Twitter stock can improve results by expanding video content. “Our strategy is clearly to align with TV to drive incremental reach to them and frankly tune into their core product,” Twitter’s VP of revenue, Matt Derella, told CNBC. “We’re really an extension of what they are doing.”
Yes, Twitter has a large base of actual users. There is something there in terms of value and monetization. But it’s taken an awfully long time to figure out just how to optimally monetize this base. The users are worth something, it’s just a question of whether or not another company decides what they are worth and makes a move.
Bottom Line on TWTR Stock
Is it possible that Twitter stock will become profitable? Yes, in time. Certainly the fact that it is cash flow positive is going to make it an attractive investment to some. Time will tell.
For now, I don’t care for TWTR stock. I consider TWTR stock to be a house of cards. It may or may not topple, so only speculative investors may want to allocate a tiny portion of their long-term diversified portfolio to it.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 23 years’ experience in the stock market, and has written more than 1,800 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.
