When it rains, it pours. Nowhere is that more true right now than the social media industry, which has dealt out massive pullbacks in names like Twitter (NYSE:TWTR), Facebook (NASDAQ:FB) and Snap (NYSE:SNAP). But unlike two of these names, Twitter stock is actually one investors may want to consider on the long side.
Does that mean we hate Facebook and Snap? Not necessarily. Just that, amid the carnage, we find TWTR stock to be the best positioned as an investment.
While Facebook is far more profitable and has a much more robust advertising model, its chart is a disaster. There are calls to separate founder Mark Zuckerberg’s roles as CEO and chairman, while negative news continues to come out seemingly every week. That said, if Facebook’s chart can turn it around (here’s what we’re looking for), it will again become interesting on the long side.
On the other hand, Snap is widely unattractive to me and I’ve been pessimistic on it for quite some time. If the company would quit hemorrhaging money, I could start to consider it. But its valuation still remains high and user engagement isn’t encouraging. In short, we’ll pass.
So that leaves Twitter.
Why Like Twitter Stock?
With a market cap now north of $25 billion, it’s not the attractive takeover target it was when the share price was less than half of what it is today when it was trading around $14. Since then though, a lot has changed.
Twitter stock last hit those lows in April 2017. In the same month, Twitter reported a Q1 revenue decline of 7.8% and earnings of 11 cents per share (beating estimates by 10 cents a share). This year when Twitter reported its Q1 2018 results, revenue growth boomed 21.3% while earnings accelerated 45% to 16 cents a share.
That momentum has not only continued, but accelerated. In Q2 revenue grew 23.9% and last quarter, sales expanded 28.6% year-over-year (YoY). Earnings came in at 21 cents per share, more than double last year’s dime-a-share bottom-line results.
On a trailing 12-month basis, Twitter has generated more than $1.2 billion in operating cash flow and more than $750 million in free-cash flow.
Yes, still not a wildly profitable enterprise. But the numbers are all moving in the right direction and Twitter has one of the most noteworthy platforms which features breaking news, instant commentary and a way for anyone from athletes, to Oprah, to the president to get the word out how they want. There’s value in that model and eventually it will be realized.
Last quarter, ad revenue grew 29% YoY to $650 million. Not only did that crush expectations of ~$590 million, but it showed that ad engagements grew 50% while cost per click decreased 14%.
What that tells me is that Twitter’s becoming more efficient with ad targeting, which creates value for advertisers and users. The better Twitter gets, the more desirable its platform becomes and the more it can charge.
Trading TWTR Stock Price
We recently highlighted Twitter stock as a top stock trade candidate in late-November. Shortly after saying bulls could buy a pullback into the $31 area near uptrend support, we got it. At first, it looked like TWTR was going to break down and close below this mark. But an intraday bounce saved the setup and now we’re seeing some decent strength in Twitter.
Shares jumped 7% on Monday in the first trading day of December. Now bulls are wondering, can that momentum continue?
Twitter stock is rallying right into the 200-day moving average. After such a strong move on Monday and a big reversal on Friday, a pullback or some consolidation wouldn’t be surprising or discouraging.
Instead, I’m more impressed with the powerful move over downtrend resistance (blue line). So long as TWTR stock stays over this level it can allow uptrend support (purple line) and the 21-day moving average to guide it higher.
My first upside target for $36, where I will revisit the name if and when it gets there. On the downside, it would be discouraging to lose the 50-day and uptrend support.