Twitter Inc. (NYSE:TWTR) continues to trade well despite the volatility in the broader market and better-than-expected earnings propelled TWTR stock higher. Meanwhile, Facebook Inc (NASDAQ:FB) stock is going through a tough time and Snap Inc (NYSE:SNAP) has a terribly high valuation.
Does that mean we should shift our focus to TWTR instead?
For years, investors have been waiting for Twitter to tap into the gold mine it’s sitting on. Think about it. It has a several hundred million users and is the go-to site for breaking news. Live updates, tweets from the President, sports scores — you name it. Like it or not, Twitter gives users unimpeded access to get the word out. That has tremendous value if the company can harness it.
It’s tried the acquisition game once before, but it could still make for an interesting add-on for another company. Think of something like YouTube TV from Alphabet Inc (NASDAQ:GOOGL). As it airs the Oscars, a live sports game or a new weekly episode that has millions of fans, there’s an instant place to see commentary and reactions.
Of course, Alphabet could work out a deal with Twitter for this feature without acquiring it, but you get the picture. Twitter has value as the world’s go-to platform for breaking news. And now we’re seeing management slowly but surely uncover that value.
Improve the Platform, Improve the Business
While Twitter may have a unique platform that hasn’t seen its value properly tapped, the business of Twitter isn’t necessarily spectacular. The company just turned in its first positive quarterly net income on a GAAP basis. What took so long?
In any regard, last quarter we saw revenue increase just 2% year-over-year (YoY) while monthly active users (MAUs) of 330 million were flat quarter-over-quarter (QoQ). While these results don’t really scream “Buy TWTR!” other results show promise.
For instance, while revenue grew just 2% YoY, EBITDA jumped to $308 million, up 43% YoY from $215 million. GAAP earnings of 12 cents per share was vastly better than the 23 cents per share loss in the same quarter a year ago. Finally, while MAUs were flat QoQ, they grew 4% YoY. Further, daily active users (DAUs) rose 12% YoY, TWTR’s fifth consecutive quarter of double-digit growth.
Strong DAU growth suggests users are becoming more engaged with the platform. Maybe it’s the platform’s curated Moments feature or live-streaming video. Perhaps it’s Twitter’s efforts in improving user quality and cutting down the “troll” base that’s plagued effective communication and enjoyment on threads.
The company’s efforts to quiet the trolls, expand character counts, easily make threads and simplifying the sharing process all make for a better experience. Building a successful social media platform is not easy, although the concept is. In a nutshell, boost engagement and users will spend more time on the platform. More time on the platform means more ad sales and better pricing power.
If Twitter can continue to engage users and grow their time on the platform, its recent profit could turn into a trend. That will attractive investors and possibly even M&A buyers.
Trading TWTR Stock
Investors buying into TWTR stock now are doing so on the belief that its recent trends can continue. After all, why buy a stock that’s up 100% over the last six months if you believe its fortunes will reverse? That’s led to an interesting debate on whether to buy Facebook, Snap or Twitter stock. I’ve never cared for Snap from an investment perspective. We did flag a nice trade in the stock, but its valuation made it too hard to hold for the long term.
Instead, it’s always been a FB vs. Twitter debate for us.
Arguably, both have their merits. Facebook is a best-in-breed option, while TWTR has had upside due to its depressed stock price.
On thing to note on Twitter stock is the relative strength. Despite the barrage of volatility plaguing the markets, TWTR has been very strong and it’s why we’ve liked stock. On March 5th, we can see a very clear move out of its recent consolidation pattern.
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Look for a move back to $35 and see if TWTR can breakout or if it stalls. If it stalls, the bottom of its consolidation range (blue line) could be support going forward. We won’t know until we see how it handles $35, though. Either way, we still like TWTR.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.
