Twitter Stock Just Might Rise Back to the $40 Level

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After plunging from over $40 last Octover, Twitter (NYSE:TWTR) is trying to rebound, but Twitter stock has been ligering in the $30 since the drop.

Twitter Stock Just Might Rise Back to the $40 Level

Source: Worawee Meepian / Shutterstock.com

Bullishness for its competitors, Snap (NYSE:SNAP) and Facebook (NASDAQ:FB) might explain the renewed bullishness for the microblogging site. And while the latter companies’ stocks are trending towards 52-week highs, Twitter still has a long way to go.

What should investors look for as tthe company reports quarterly earnings before the Feb. 6 market open?

Twitter Stock and Debt

On Dec. 6, 2019, Twitter priced its $700 million aggregate senior notes due 2027. This is upsized from $600 million. Strong demand for Twitter’s debt signals investor confidence.

This oversubscribed deal also lowers debt costs. The borrowed money bolsters Twitter’s balance sheet and gives the company plenty of financial flexibility.

Twitter could acquire smaller companies to strengthen its advertising technology. Or it could experiment and buy content to increase user engagement and stickiness. Any expense that drives user activity is a positive development for its business.

Protecting User Privacy

In an age where more sharing negates user concerns on privacy, Twitter is still protecting user data. The company posted that it launched the Twitter Privacy Center.

Twitter will be more transparent with its users in the way it uses user data. Gaining its user’s trust may help the site retain its users. It might even draw users away from Facebook, Facebook’s Instagram, or Snap. If not, Twitter still benefits if users install and use the Twitter app alongside Instagram and Snapchat.

Third-Quarter Earnings Miss

Investors lifted TWTR stock close to the $33 level, up from the $28.63 bottom last November. They are betting that Twitter’s Q3 revenue and earnings miss will reverse with a Q4 rebound. But this scenario is unlikely. Twitter reported Q3 revenues hurt from product issues and weaknesses in its ad business in the summer.

Ad revenue of $702 million missed the consensus of $755.8 million. Still, Twitter’s average mobile daily active users (mDAU ) was 30 million.

For the fourth quarter, Twitter forecast revenue in the range of $940 million to $1.01 billion. Analysts expected revenue of $1.06 billion.

Twitter’s Moat

Twitter has no excuse to report such weak Q3 results. The company is a household name. It has a monopoly on delivering real-time user posts and has many famous, well-known people active on the site. This includes the President of the United States.

Having a part-time CEO could be part of the problem that limits Twitter’s growth. The company needs a leader that may execute on a long-term growth strategy. Last quarter’s daily usage suggested plenty of revenue potential ahead. At 19 million daily customers added Y/Y, Twitter has a strong foundation to build growth.

Site Cleanup

CEO Jack Dorsey said on its conference call that it cleaned up its user base. It said:

Today, we’ve crossed another threshold. Over half of the enforcement actions we take in any given week for violating our abuse rules is now proactively identified and verified by our agents before a victim or bystander has to report the violation.

Source: SA Transcript

Though the site risks removing users who are not really violating its terms and conditions, improving tweet moderating will remove the noise. This will lead to a growing network led by interest and users spending more time following accounts that match their interests.

The Bottom Line on Twitter Stock

Twitter’s modest growth rate suggests that the stock trades at close to fair value. On a 5-year DCF Growth Exit model (from finbox.io), investors may assign a perpetuity growth rate of 4%.

Conversely, if Twitter’s revenue exceeds its lowered guidance, investors may assign a higher growth rate and forecast a fair value for its stock.

Disclosure: As of this writing, the author did not hold a position in any of the aforementioned securities.

Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get actionable insight to achieve strong investment returns.


Article printed from InvestorPlace Media, https://investorplace.com/2020/01/twitter-stock-rise-back/.

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