The billionaire investor recently admitted that he sold Twitter (NYSE:TWTR) along with many of his other publicly traded investments in a move to cash that’s less about TWTR stock and more about the state of the markets.
“No, I don’t — but not for any particular reason other than I wanted to accumulate as much cash as possible,” Cuban told CNBC’s Fast Money Halftime Report August 13…. “I’ve got a whole lot of cash on the sidelines. There’s just no way where you can say, ‘I just trust everything that’s going on.’ And that concerns me.”
And so it should because U.S. companies have racked up record debt in recent years buying back shares, a process which has hidden many of their weaknesses.
That said, I have to wonder if the stock’s 106% return over the past 52 weeks combined with a bull market that’s long in the tooth, had Cuban surmising that taking profits isn’t a bad thing.
Nonetheless, I’m someone who’s had a love-hate relationship with Twitter and TWTR stock in the past, so I’m naturally curious whether he’s 100% honest about his reasons.
Why Should You Hold?
Despite all the negative press about social media in general and Twitter specifically, the company’s financial situation has never been better.
“Twitter is expected to grow its earnings by 60% this year and by an average of 34% annually in each of the next five years,” wrote InvestorPlace’s Robert Martin August 9. “The sharp decline of TWTR stock is a perfect example of an overreaction by the market that spells opportunity for savvy investors.”
He’s not wrong.
From a financial perspective, Twitter has come a long way.
In December, I argued that Twitter had to make money on a GAAP basis before it could ever expect to see TWTR stock move back into the $70s where it traded in early 2014.
Since then it’s delivered three straight quarterly profits and should provide a GAAP profit for the entire fiscal year.
Why Should You Sell?
The playing field in social media has gotten pretty dicey in 2018 with all three of the major players including Twitter either growing more slowly or losing users according to the most recent quarterly numbers.
On July 27, TWTR stock fell more than 20%, the most in the past four years on the news Twitter’s monthly active users in Q2 dropped by a million from the first quarter, another possible sign social media fatigue has set in.
However, the drop might be a good thing, as it continues to work on cleaning up the platform so loyal users can feel safe free from the trolls.
That said, some analysts don’t see the added publicity from the Tweeter in Chief making a whole lot of difference to its growth.
“Despite Trump being perhaps the most high-profile user possible, usage has not dramatically improved over the past couple of years,” Benjamin Schachter, an analyst at Macquarie Securities, wrote in a note to clients in July. “We simply don’t see the product improvements having a dramatic impact on Twitter’s ability to attract new users.”
Bottom Line on TWTR Stock
In the case of Twitter, I was of the belief that it had to become profitable before its stock could take off.
Now that it’s producing consistent profits, I believe the company can make more money by better engaging its users rather than focusing on trying to keep growing its user base.
Eventually, the fact that real people are benefiting from using the platform will renew its user growth.
Below $30, Twitter is a bargain. If you already own it, I wouldn’t sell; instead, I would wait for an entry point below $30 to buy some more.
As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.