Collect Your Gains and Get Out of Twitter Inc Stock

Twitter stock - Collect Your Gains and Get Out of Twitter Inc Stock

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If you were one of the brave few who put their faith in social media firm Twitter Inc (NYSE:TWTR) last year, I salute you. I have long been bearish on Twitter stock because I think the company’s future is far too uncertain to bet on. But if you’ve been along for the ride over the past six months, you’ve seen TWTR’s share price rise a whopping 96%.

While that’s impressive foresight, I’d urge you to consider taking profits and putting your money elsewhere. After all, perhaps the most important part of investing is knowing when to sell, and that time is now for Twitter.

Over the past few weeks, TWTR has been flooded with optimism after the firm was finally able to turn a profit. I’ll admit, Twitter’s fourth quarter results were definitely an improvement, but they weren’t strong enough to turn this bear into a bull.

For one, this whole “turning a profit” thing is a little bit over done. According to generally accepted accounting practices, yes, Twitter was profitable. However if you make it past that headline, you’ll see how the company got there, which is questionable if you’re thinking long term.

Overall revenue increased by just 2% from the year-earlier quarter. Revenue in the U.S. was down 8% during the same period. User growth also left something to be desired, with monthly active users rising by just 4% from the previous year. Yes, it’s good that they’re still increasing, but when you look at user growth over the past seven years, you’ll see that the site appears to be nearing a plateau.

So with all that in mind, it might seem impossible that Twitter turned a profit, but thanks to the company’s cost-cutting efforts, it did. The little blue bird shed $68 million from its R&D spending and $71 million from its sales and marketing budget. There’s no longevity to that kind of profit, making Twitter stock a poor long-term bet.

Long-Term Plans for TWTR

Speaking of the future, Twitter investors should be a little bit concerned by the fact that the company’s COO Anthony Noto is abandoning the firm to become CEO of fintech firm SoFi.

The reason Noto’s departure is troubling is that he is the man behind the firm’s turnaround plans, which clearly haven’t materialized yet. Losing the person who had been steering the ship in a new direction midway through that U-turn is never a good sign.

Sure, Twitter still has CEO Jack Dorsey at the helm, but aside from the fact that he has always been far more involved in engineering and software development than business strategy, he’s also essentially working part-time. Dorsey is also CEO of payment-processing firm Square Inc.(NYSE:SQ), so no matter how you look at it, he’s splitting his time between two companies.

The Fall of Facebook

The other reason many people have started to become bullish on Twitter stock has been the bad press that rival Facebook, Inc. (NASDAQ:FB) has been getting. Facebook revealed that the site would be undergoing some changes in order to improve the user experience and increase engagement.

Among other things, the company is planning to reduce the number of viral videos and publisher content that its users see on their news feeds. That change will hurt advertisers because it will cut out a lot of their ad space on the platform.

It’s possible that this change will be a major tailwind for TWTR. After all, advertisers will have to go somewhere. However, as I wrote earlier this month, the changes to FB’s platform doesn’t mean that the firm won’t still be raking in advertising dollars.

Its other platforms — Instagram, WhatsApp and Facebook Messenger — still have a lot of potential space for advertisers. Advertisers will want to be where the most people will see their ads, and Twitter will need to ramp up its user growth in order to be a top choice.

The Bottom Line on Twitter Stock

Twitter stock is far too expensive to buy right now, and if you already own it, you might want to count your blessings and take profits. While the next few quarters are likely to offer easy comparisons that will make the firm look good, I’m not convinced that there are any long-term plans in place that will keep the company profitable beyond the next couple of quarters.

Twitter stock is simply overvalued at this point, and it’s likely to come back down to earth at some point this year.

As of this writing, Laura Hoy was long FB stock.

Marie Brodbeck has a Finance degree from Duquesne University and has been a financial journalist for more than a decade. Her work can be seen in a variety of publications including InvestorPlace, Benzinga, Yahoo Finance and CCN.


Article printed from InvestorPlace Media, https://investorplace.com/2018/02/collect-your-gains-and-get-out-of-twitter-stock/.

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