Twitter (NYSE:TWTR) has had a rough go of it since its launch in 2013. It had a great deal of promise just like many of the young social media companies did. Subscribers to the free service were growing and the platform was very popular. While building a micro-blogging site is relatively easy, TWTR dominated the competition so quickly that it was the main player in the space without much difficulty.
But then, it ran into the same challenges as its social media peers, like Facebook (NASDAQ:FB). It had to monetize all those people who had signed up. And that is far more complicated.
Imagine McDonald’s (NYSE:MCD) gave away a new sandwich. It’s easy to get people to eat a free lunch. But getting them to buy a meal is significantly harder. What’s different for social media companies like Twitter is that you’re not selling a subscription, you’re courting advertisers to use the platform to sell to users.
At first, like with Facebook, advertisers flocked to the platform as a great way to add to their digital advertising portfolios. Their clients wanted exposure in new media as older forms of marketing were losing steam. But there’s an old adage in direct mail. It’s easy to give something away, but getting people to pay, even a penny, is something entirely different. And Twitter found this out.
Advertisers were not impressed with their initial efforts. There were challenges with how ads could be presented both from the back end and the front end. And working out those challenges took a while. This problem wasn’t unique to TWTR — FB also went through similar struggles. But the market didn’t care. It expected great things immediately and had priced in a significant premium for monetizing subscribers.
When TWTR stumbled, it was punished.
Some of the challenges for Twitter were the direct result of its micro-blogging platform. It was easier for FB to shift its format and deliver an advertising-friendly platform much more easily. As TWTR struggled, the stock slid. And critics were beginning to think that TWTR may never truly realize its potential.
But the digital world is very impatient. This whole story has unfolded in a mere six years.
The Bottom Line on TWTR Stock
Now, Twitter has re-emerged, in part thanks to a United States president who uses the platform to get around traditional media and speak directly to his followers. But it’s not only the growing popularity of the platform, it’s also the fact that TWTR has found traction in its advertising revenue.
TWTR stock is up 17% in the past 12 months and has really taken off in 2019 — it’s up almost 48% year-to-date. But the thing is, its trailing price-to-earnings ratio still sits just below 14.
My Portfolio Grader give TWTR stock an “A” rating. It’s a strong buy here.
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.
