Not all social media stocks are created equal. Consider Twitter (NYSE:TWTR), for example. Experts judge it on its user metrics strictly from the counts. Wall Street is obsessed with the number of active members, and this is a problem for the stock.
This also ties it to stocks like Facebook (NASDAQ:FB), which exacerbates things. The Facebook metrics are massive and would make any other company look like a failure. Plus there is the risk over privacy issues.
Twitter is the Google of news agencies. It should be the norm of how news is disseminated in this new web-based world. My news comes to me first and directly to my phone. People are shocked to learn this, and within a few minutes they become users themselves.
Not everyone’s going to be tweeting, but anyone can receive global news about anything they find interesting within seconds. And therein lies a huge opportunity. Amazon (NASDAQ:AMZN) changed the game with regards to shopping. Twitter changed the game with regards to news. But the difference is Twitter has not told the world yet.
Fundamentally, it sells at a 17 price-to-earnings ratio which is not bloated but it is hampered by the metrics. They are a short-term liability to the Twitter stock during earnings reports. Analysts are quick to judge it on the headlines, so I don’t think it has yet unlocked its potential.
Management can radically improve their P&L if they adopt the pay-per-click model to commercial account, and that would launch the stock. But that’s not in the cards here. Recently I clicked on a Wall Street Journal video tweet. I had to to watch a Wall Street Journal ad before I got to see the content of that video. Twitter should charge the WSJ for that tweet. The model is proven, so we know it works.
This is a solid company that is here to stay. We are addicted to telling the world what we’re doing, when we’re doing it and how. So as long as they continue to improve on their platform, Twitter will be part an essential social media outlet for years to come.
Twitter Stock Risks
But there are macroeconomic risks. We still have global uncertainties looming over the equity markets. The U.S. and China are still fighting over tariffs. And the U.S. Federal Reserve is still raising rates in spite of signs of global economic slowdown.
There are also some intrinsic challenges. If Donald Trump loses the next presidential election, there will likely be a big dip in Twitter usage. This is a high-profile personality on the scene, and he would leave it giant void of demand on its usage.
But that doesn’t mean I can’t trade TWTR stock for the mid-term.
I actively trade Twitter, but only based on technical charts versus its potential upside in value. The stock had a breakout opportunity at the end of October that failed because of the market correction. The next clear opportunity arrives if it comes back to that neckline. Above $35.70 TWTR stock would have a $10 potential upside from there.
Buying it now would be more a bet on a hopium market-wide bounce than real opportunity. $30 per share is a prior pivot zone so it should provide support but it’s not guaranteed. It is still up 25% year-to-date so there is plenty of froth to lose. Speculators can jump the gun here for a bounce trade, but I prefer to trade actual triggers.
The biggest fundamental problem with Twitter stock is its management. They have a tremendous platform but they haven’t even scratched the surface with regards to its potential. They have barely changed it since inception, except to add characters to the input box. They need to refresh it and reintroduce it to the world.
I remember watching a video in the beginning days to explain what the heck it was. It was a cute, short video that told me exactly what to expect and how to get started. Now they take it for granted that everyone knows that but they don’t. They need to re-introduce it to the world as the new way of getting the news. This will fit perfectly with the instant gratification generation.
Twitter has tremendous potential as a platform, but eventually someone needs to figure it out. But that’s the buyout hope that hasn’t come yet. And that’s the subject of another article.
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Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on Twitter and Stocktwits.
