With Twitter Inc, Earnings Are Not the Story

Twitter Inc (NASDAQ:TWTR) is expected to report a profit on Feb. 8, when it reports earnings after hours.

Twitter Inc (TWTR) Stock Bulls Are Charging Wildly – Again

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Investors have been piling into the stock in anticipation. The shares are up 5% while the broader market is flat for the year. Hitting the “whisper number,” earnings of 19 cents per share on revenues of $690 million, would seem to indicate it’s a buy.

But there is a bigger story around Twitter. Bigger than fake porn, bigger than Russian bots, bigger than Donald Trump and the Kardashians put together.

COO Anthony Noto has left the building, to run privately held SoFi, and he isn’t coming back. Twitter has lost its adult supervision, and investors need to decide if they can trust it.

Noto Turnaround

Noto had been with Twitter for four years, and previously helped bring the company public with Goldman Sachs Inc. (NYSE:GS). He drove Twitter into live video, and led its turnaround, doubling revenue and eliminating losses that represented over one-third of revenue in 2014.

Twitter’s expected profit tomorrow would be its first as a public company, but Noto won’t be around to take bows. He won’t be taking credit for $250 million in Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA).

Noto also won’t be facing the questions about Twitter’s public trust falling to a new low, and he won’t be going to Capitol Hill to testify about extremist content on its platform.

No Noto? Yes, Problem.

Twitter CEO Jack Dorsey is a part-timer. He also runs Square Inc. (NASDAQ:SQ). Twitter has no plans to appoint a replacement for Noto, saying it will separate his job into parts. Twitter today has no public face.

Noto has left as Twitter’s user base tops out at about 331 million, as its revenues are declining year-over-year, and as it faces intense regulatory scrutiny around the world.

Investors and analysts aren’t paying attention. Four analysts have switched their recommendations to buy over the last three months, although most are still in the wishy-washy “hold” camp. The stock is now up 30% since it last reported earnings in November.

Twitter’s stock performance over the last three months, in fact, has been the best in the social media space. Facebook Inc (NASDAQ:FB) is only up 3%, Snap Inc (NASDAQ:SNAP) is up 5%, and the mighty Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) is up just 4%.

Is There a Buyer?

Maybe bulls are expecting a quick buy-out. Noto has made Twitter a global brand. Verizon Communications Inc. (NYSE:VZ) might want to bolt that on to its OATH platform, which includes the old Yahoo and America Online. Facebook or Alphabet might find it affordable.

Our Joseph Hargett says that Twitter stock handled the early-February sell-off quite well and that it should be on investors’ radar as a potential buy. He suggests that Salesforce.Com Inc. (NYSE:CRM) or Chinese giant TenCent Holdings Ltd. (OTCMKTS:TCEHY) might be interested in buying the company.

But Twitter is far removed from Salesforce’s normal business. It would add to Facebook’s existing reputation problems. TenCent could find an attempted buy stymied by the same anti-China forces that blocked the Alibaba Group Holding Ltd (NASDAQ:BABA) effort to buy Moneygram, a much smaller company. China is also discouraging foreign investment in favor of domestic, as I noted last month in writing about AMC Entertainment Holdings Inc. (NYSE:AMC).

The Bottom Line

With no Noto, and no white knight in sight, it perplexes me why so many people are bullish on Twitter. Investors buy tomorrow, not yesterday, and I see a company for whom tomorrow may be as good as it gets.

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 shares in BABA.

Article printed from InvestorPlace Media, https://investorplace.com/2018/02/twitter-inc-twtr-earnings-are-not-the-story/.

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