Suddenly, it seems everyone loves Twitter Inc (NYSE:TWTR). Twitter stock is up 31% in the last month, against a 4% gain in the NASDAQ Composite. The shares are up more than 80% so far in 2018 and closed at $46.76 on Jun. 14.
This gives Twitter stock a market cap of over $32.5 billion, on trailing-year revenue of under $2.5 billion. Analysts are expecting earnings of 17 cents per share, over $127 million, for the current quarter.
Is it time to jump on the bandwagon? Not so fast.
Twitter is selling $1 billion in convertible bonds, loans that can be turned into common stock. In buying other companies and giving employees stock as compensation, one analyst says, it’s burning cash, not accumulating it.
Twitter is winning a lot of praise for video pre-roll ads, which start playing when users click on a tweet with embedded video. These have become its main ad vehicle. This makes its business model less like that of Facebook, Inc. (NASDAQ:FB) and more like that of a TV network.
Speaking of which, Twitter is also winning praise for its live streams, again becoming a broadcaster. The same shows you would watch on cable are now coming to your phone, which is great if you don’t have cable. But it’s a very skinny bundle, just a few games and programs scattered here and there.
But I’ve seen this movie before.
It is typical that in the late stages of a bull market, analysts will work hard to convince themselves, and others, that a company’s spin is reality, and that its past isn’t prologue.
Twitter, in short, is a momentum stock. People are buying it because people are buying it. Never mind that you’re paying 13 times revenue; those revenues are growing. Never mind that there’s no price-to-earnings multiple; there soon will be.
People who missed the big moves in Facebook and Netflix, Inc. (NASDAQ:NFLX) are piling into Twitter and expecting the same ride. But Facebook owns its infrastructure and has real assets. Netflix has a growing media library and software that tells it what to make next, as well as immense subscription revenue.
Twitter, which was a text-messaging service, is now a TV station. Are TV stations increasing in value? Are cable networks?
The Bottom Line on Twitter Stock
There is no doubt that tech has been the star of the 2018 bull market.
The five “Cloud Czars,” Apple Inc. (NASDAQ:AAPL), Amazon.com, Inc. (NASDAQ:AMZN), Microsoft Corporation (NASDAQ:MSFT), Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG) and Facebook, are now worth a combined $3.9 trillion. Companies that have ridden this infrastructure, like Netflix, have also risen to glory.
But these companies all have assets in hyper-scale data centers and networks to connect them. They all make profits, as much as 40 cents on the dollar or more. The infrastructure’s successful users have business models that draw money directly from customers.
Twitter doesn’t, and Twitter won’t. When the market turns, Twitter stock will be among the first stocks jettisoned.
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 [email protected] or follow him on Twitter at @danablankenhorn. As of this writing, he owned shares in AMZN and MSFT.