Twitter (NASDAQ:TWTR) hasn’t had a great fall season. Since peaking at $45.85 in September, Twitter stock is now down 35% thanks to weaker than expected third-quarter revenue and profit growth, despite strong user growth.
For the quarter, TWTR posted 8% year over year revenue growth to $824 million. While that’s a solid increase, it still fell short of expectations for $874 million.
In addition, adjusted EPS fell 19% to 17 cents a share, which was also below expectations for 20 cents. Twitter disappointed further with a revenue forecast of $975 million, which falls short of $1.06 billion estimates.
Twitter blamed two technical bugs for the disastrous quarter, both of which limited its ability to target users or share data with advertisers. In the end, this forced some advertisers to cut back on spending.
According to Wall Street Journal contributor Sahil Patel:
“The first bug showed some users ads based partly on inferences it made about the types of devices they were using, even if they had opted out of that type of tracking. The second, revolving around a suite of ad products that help marketers promote their mobile apps on Twitter, shared user data such as country codes with measurement and advertising partners, even if users had not given Twitter permission to do so.”
While the company is working to fix the issue, TWTR does expect it to also impact fourth quarter revenue growth, as well.
That’s what led MKM Partners’ Rohit Kulkarni has a neutral rating on the stock with a $44 target, noting, “Twitter’s turnaround has clearly hit a small detour.”
Stifel analyst John Egbert said the bug issues could plague Twitter stock beyond this year.
Goldman Sachs even downgraded the stock from $52 to $34, and also lowered its 2019-2021 estimates to “reflect the company’s advertising issues.” However, I believe a good amount of fear has been priced into the stock.
Investors should use this dip as an opportunity to accumulate. I believe the TWTR stock could easily refill its bearish gap at $39 with patience.
Twitter Is Still Seeing Plenty of Growth
Quarter over quarter, TWTR added six million users. Year over year, it’s added 21 million.
That now gives Twitter 145 million daily average users (DAUs), 30 million are domestic, with 115 million global. That also shows steady growth over the last few years.
“The core thesis that Twitter’s turning itself into a more enticing place to spend your screen time remains intact. If anything, it’s gotten better as the user growth numbers are accelerating. Management just needs to get the advertising system back on track, which is something they’ve done before,” noted CNBC’s Jim Cramer.
The advertising-bug issue is correctible, and not worthy of a $10 drop in the stock. Once it is fixed, I expect the company to see improvements in revenue, and further user growth.
Twitter is also Technically Oversold
If you take a look at a three-year chart of TWTR stock, you can clearly see it’s oversold at support dating back to early 2018.
In addition, it’s now oversold at its lower Bollinger Band (2,20). In fact, every time, TWTR stock pulls back to the lower Band, it tends to bounce.
Of course, we can’t rely on just Bands to confirm the opportunity.
So, we also look at relative strength (RSI). Notice what happens when the TWTR stock is at its lower Bollinger Band, as RSI slips to or below its 20-line. We see a pivot not long after.
We can strengthen that with over-extensions on MACD, and even with a recent dip to the 80-line on Williams’ %R (W%R). The best part – when these indicators align in oversold territory, we tend to see a pivot higher.
The Bottom Line on Twitter Stock
Twitter stock is a strong buy in my opinion. Negativity from analysts and advertising issues appear to have been priced in. In addition, the market is far too focused on the short-term noise than the longer-term opportunity being offered at unsustainable lows.
Investors should use the latest dip as an opportunity to buy TWTR stock.
As of this writing, Ian Cooper did not hold a position in any of the aforementioned securities.
