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Best Stocks for 2018: Twitter Stock Takes a Tumble

TWTR stock has started to show weakness lately, but the long-term case is still intact

TWTR stock - Best Stocks for 2018: Twitter Stock Takes a Tumble

Editor’s note: This column is part of our Best Stocks for 2018 contest. Jason Moser’s pick for the contest is Twitter Inc (NYSE:TWTR).

Twitter’s (NYSE:TWTR) second-quarter results were mostly encouraging, but concerns over monthly active users (MAU) took center stage again, and the market punished TWTR stock.

Revenue was up 23% (excluding currency effects) from a year ago to $711 million, and Twitter reported its third consecutive GAAP-profitable quarter with earnings-per-share of $0.13. MAU fell by 1 million from the previous quarter to 335 million, while daily active users (DAU) saw another quarter of double-digit growth at 11%, indicating continued strong engagement. Ad engagements were up 81%, while cost per engagement was down 32%, indicating strong ROI for ad clients.

Management is also delivering on its promise to bring down stock-based compensation (SBC) as a percentage of revenue. For the second quarter, SBC as a percentage of revenue came in at 11.2%, down from 19.7% a year ago.

The market’s concerns for TWTR stock stem from management’s language that in continuing to focus on the health of the platform (safety, GDPR, inactives, spam, bots, etc.), it expects MAU to decline in the “mid-single-digit millions” in the third quarter. It will also bump up capital expenditures to invest in infrastructure. So the selloff in the stock, while seemingly short-sighted, is at least understandable. Management remains steadfast in its belief that a healthy platform is the key to long-term success, and I agree. Twitter has been on a heck of a run over the last year, and it can be argued that Twitter stock got a bit ahead of itself in the process.

While the haircut for TWTR stock isn’t pleasant, at the end of the day, we have a transparent management team building a powerful global network, and a profitable business that’s back to growing its top line; not a bad combo.

Investors taking the long view in Twitter stock should feel comfortable hanging in there and letting management do its thing.

As of this writing, Jason Moser, a senior analyst for The Motley Fool’s flagship real-money portfolio service, Million Dollar Portfolio, held shares of TWTR.

Article printed from InvestorPlace Media,

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