Irrational Exuberance Is the Only Growth Driver for Twitter Inc Stock

TWTR stock - Irrational Exuberance Is the Only Growth Driver for Twitter Inc Stock

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Twitter Inc (NASDAQ:TWTR) continues its march higher. My bearish call from last week before earnings was met with the stock beating expectations, turning a profit, and rising by almost 25%. Despite this positive report, the company declined to address the company’s lingering issues in the same earnings report.

These challenges will likely bring disappointment and losses to long-term TWTR stock investors.

TWTR Stock Beat Earnings

Last week, Twitter beat Wall Street estimates on both revenues and earnings, giving the company its first quarterly profit. For 4Q 2017, earnings came in at 19 cents per share, 5 cents per share ahead of expectations.

This is up from its 23 cents per share quarterly loss in 4Q 2016. Revenue came in at $732 million, $46 million ahead of estimates and 2% higher than the 4Q 2016 figure of $717 million.

Where the company fell short of estimates was in monthly active users (MAUs). The company reported 330 million MAUs when analysts had been looking for 332.5 million. Investors ignored the weak MAU numbers and bid the price of the stock up to the nearly $34 per share range where the stock trades today.

Although I’ve spoken negatively in all my articles on TWTR stock, I like the site itself. I log on every day and read updates from my favorite public figures. The 280-character limit ensures that discussions, which can bog down on the site run by Facebook Inc (NASDAQ:FB), remain refreshingly brief.

Twitter’s platform also allowed my business page to grow in ways that Facebook and LinkedIn (now owned by Microsoft Corporation (NASDAQ:MSFT)) have not permitted.

Takeover Speculation and TWTR Stock

Despite my feelings, I see little that will change its status as a niche site that derives modest revenue growth. CEO Jack Dorsey has made some strides in attracting revenue. The problem is the company can’t make any moves that will supplant Facebook as the king of social media.

Dorsey also can’t devote his full attention to Twitter as he also runs Square Inc (NYSE:SQ), which involves competing against different tech giants.

Moreover, Despite Dorsey’s desire to keep the company independent, much of the recent stock price increases have involved takeover speculation. Rumors abounded in 2016 that Walt Disney Co (NYSE:DIS) or Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG) had shown interest in a Twitter buyout.

However, neither company made such an offer. Now, Tencent Holdings Ltd (OTCMKTS:TCEHY) and Verizon Communications Inc. (NYSE:VZ) are rumored to be the interested parties.

Assuming this rumor becomes fact, much of the takeover speculation has been likely built into the price on the recent run-up. Moreover, as many of my colleagues have pointed out, few additional revenue drivers have appeared. Subscriber growth remains flat, and quarterly ad revenues grew by only 7%.

This lags growth rates for giants such as Alphabet and Facebook, and even lags Snap Inc (NYSE:SNAP). Little remains to drive TWTR stock higher other than irrational exuberance. We all know where irrational exuberance led stocks after the dot-com boom and the housing bubble.

Final Thoughts on TWTR Stock

Twitter stock impressed Wall Street with its first-ever quarterly profit and its beat on revenue. However, the company’s fundamental growth problems remain. TWTR has established a niche in entertainment and political talk. Unfortunately for company investors, the company has failed to increase users or find more ways to monetize the site.

Of the major social media platforms, TWTR suffers from the smallest growth rate in revenues. Also, the number of MAUs has started falling. With few apparent growth drivers, only irrational exuberance can drive the stock higher. Twitter provides an excellent platform for a few social media niches.

However, for profitable tech investing, buyers should look at other stocks.

As of this writing, Will Healy did not hold a position in any of the aforementioned stocks.

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