Twitter (NYSE:TWTR) released its Q4 earnings last week. And Twitter stock got hammered.
Why?
It wasn’t its Q4 numbers, which came in at or above analysts’ expectations. Revenue came in at $909 million compared to an expected $868 million. Earnings were 31 cents per share and estimates were for 25 cents.
Even monthly active users (DAU) came in right at analysts estimates — 321 million. Granted that was down from last year’s 330 million number, but that’s because TWTR has been very aggressive getting rid of accounts that don’t promote users’ “well-being” on the platform.
So, what was the reason Twitter stock dropped nearly 10% after its earnings announcement?
TWTR said that expenses will likely be up 20% in 2019 as it transitions its business model for the long term.
Now, the fact is, TWTR stock has been drifting up since that announcement and the ensuing selloff. It has also been selling at a current price-to-earnings ratio of just under 20. That’s lower than the average P/E of the S&P 500.
Granted, Facebook (NASDAQ:FB) stock’s P/E is sitting just above 21, but it has had a much tougher go of it in recent months. And there’s likely far more issues with FB than TWTR at the end of the day, given the platform and its massive size differential.
FB has a market cap around $468 billion, whereas TWTR is weighing in around $23 billion. There’s a significant difference in what you need to do to move the needle on a nearly half-trillion-dollar mega large-cap firm and one that is on the lower end of the large-cap universe.
What’s Ahead for Twitter Stock?
That means there’s a proportional difference in the common challenges they face, like bogus accounts, shutting down users for inappropriate behavior and in some cases, assertions that there is political bias on the platforms.
For example, earlier this week India’s Parliament has issued a summons to TWTR top leadership to appear before its Standing Committee on Information Technology. There are voices on the political right in India, including some from the ruling Bharatiya Janata Party (BJP) that think TWTR is targeting accounts for suspension due to their political views.
This is somewhat reminiscent of similar accusations lodged by some on the right in the U.S. regarding a number of social media platforms. Many times this is simply political grandstanding, since all the firms are businesses and are more than happy to host as many users as possible, so they can boost their ad revenue and user bases.
But the fact is India is an enormous market that is currently easier to enter than China, so it is in U.S. companies’ best interest to take these issues seriously. India is also starting to provide protections to local Indian businesses that are trying to grow their own bases in social media and e-commerce, and Western companies are starting to take notice.
Twitter stock is doing well and while its 2019 may not be a blockbuster, it’s doing a very smart thing by investing in its future. Soon a lot of investors will be too.
Louis Navellier is a renowned growth investor. He is the editor of four investing newsletters: Growth Investor, Breakthrough Stocks, Accelerated Profits and Platinum Growth. His most popular service, Growth Investor, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
