Twitter (NYSE:TWTR) is the social media stock Wall Street loves to hate. Since Twitter’s second-quarter report in late July, Twitter stock has pulled back about 30%. Ouch!
What spooked investors was that Twitter had fewer monthly active users than expected. While the news had some shareholders running for the exits, I doubled down. I recommended it as a buy in my newsletters.
You see, TWTR isn’t going anywhere. In fact, I expect a big comeback from Twitter stock. Allow me to explain.
First, let’s review what makes Twitter a unique player in the social media scene. As I’m sure you know, Twitter is one of the world’s leading social networks. While the site launched in 2006, it wasn’t until the 2007 South by Southwest Interaction conference that Twitter really made a splash. In the span of a few days, daily Twitter usage tripled, from 20,000 tweets to 60,000 tweets.
From a user standpoint, Twitter’s rise has been meteoric. Nowadays, there are over 500 million tweets posted each and every day. And at the end of the second quarter, Twitter boasted 335 million monthly active users — 68 million in the U.S. and 267 million internationally.
However, it took Twitter longer to hit its stride financially. My longtime readers know that I steered clear of the hype when Twitter stock went public in late 2013. And I’m glad that I did.
After an explosive IPO, it didn’t take long for TWTR to lose steam. After all, the company didn’t post a profitable quarter until Q4 2017. That’s a long time to wait for a company to be in the black.
However, 2018 marked a turning point for Twitter. The company started being profitable, and tremendously so. For three of the past four quarters, Twitter has posted double-digit earnings surprises.
Now is the time to finally buy TWTR, because there’s ample evidence that it’ll keep up the momentum from here.
For the current quarter, analysts have strong targets for Twitter. The consensus calls for earnings of $0.14 per share on $702.3 million in sales. That represents 40% bottom-line growth and 19% top-line growth. Then again, Twitter has a track record of beating estimates, so it’ll likely do better when it announces Q3 2018 results in late October.
At this point, you’re probably wondering: “But what about Twitter’s decline in monthly active users?”
So, let’s take a closer look at those Q2 numbers.
While average daily active users rose 11% over a year ago, average monthly active users (MAUs) climbed just 2.8%. Compared with the first quarter, MAUs fell by 1 million to 335 million. Analysts had expected that MAUs would rise to 337 million. For the third quarter, Twitter expects that MAUs will fall to about 330 million. This was below the Street view of 340 million.
The reason that MAUs fell is that Twitter is cracking down on fake accounts. It’s suspending any violators it finds, whether it be spreaders of fake news, spammers or bots. This is having a near-term impact on numbers.
But that’s no reason to panic. Twitter is working to build a better platform than ever before. This is very important now because Twitter is finally monetizing its business after years of being in the red.
So, those who sold their TWTR shares aren’t seeing the big picture. Twitter isn’t going anywhere. Many folks use Twitter as their main source of news and entertainment. It has become the twenty-first-century version of the Associated Press, joining the flow of mainstream news.
It also doesn’t hurt that Twitter is the social media platform of choice for President Trump. He has posted a staggering 38,000 tweets and has over 53 million followers. Given that the nation’s highest-ranking official uses Twitter to communicate directly with American citizens and the world, it’s safe to say that Twitter won’t be going away anytime soon.
For these reasons, I recommend Twitter stock as a Buy. I consider this pullback an opportunity to buying a top performer in the social media arena.