Over the past few days, Twitter (NYSE:TWTR) has been coming under pressure — both politically and in regards to its share price. TWTR stock is down almost more than 6% from its recent high, after a three-day selloff triggered by political tension.
The company continues to label President Donald Trump’s tweets. And whether investors agree or disagree with the platform’s move, it’s sure to impact the stock price in the short term. That’s especially true with Trump signing an executive order regarding social media stocks.
The Order
Currently, social media companies like Twitter, Facebook (NASDAQ:FB) and others are shielded from liability for the content posted on their platforms. To a degree, this makes sense. How — or why — should Twitter be responsible for what an individual decides to post to its platform?
I say “to a degree” because there are clear-cut scenarios where the companies should remove certain content and ban certain bad actors. We can call this “common sense” regulation.
However, after Donald Trump had some of his tweets fact-checked by Twitter and labeled as a warning, he called for a repeal of this liability shield under Section 230. As such, he signed an executive order to modify the law — although it’s unclear what the impact will be.
So, now it turns into a waiting game with some potential political risk added to the group.
Digging Deeper on Twitter
When Twitter reported earnings, shares surged on the results. Earnings were in line, and sales were better than expected despite climbing just 2.6% year-over-year. But it was the growth in users that really drove TWTR stock higher.
Average monetizable daily active users (DAUs) of 166 million topped estimates of 164 million and grew notably from 134 million in the same period a year ago. Management said the novel coronavirus helped drive user growth. The shutdowns, however, also caused revenue to dive in the second half of March and into April.
That said, both readings — increased user growth/activity and a drop in ad revenue — are consistent with what we’ve seen elsewhere. That goes for Facebook, Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG), Pinterest (NYSE:PINS) and others.
As for the full year, analysts expect revenue to fall about 5.3% year-over-year to roughly $3.3 billion. That lags the likes of Facebook, Alphabet and Pinterest, though, which are forecast to grow sales 10.4%, 4%, and 13.9% this year, respectively.
That doesn’t make Twitter a stock to ignore, but it’s worth knowing where it stands vs. its peers. Instead, investors should focus on the product and the fact that Twitter is gaining users, not losing them.
This will help drive the top and bottom line at some point, even though Covid-19 is doing its best to disrupt businesses across many different industries. From a financial perspective, that is also impacting Twitter. However, engagement is up — and with Twitter serving as a real-time news platform, it’s hard to imagine its value falling too far.
Bottom Line on TWTR Stock
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I like TWTR stock for the potential it has down the road to unlock further value. That would largely come from increasing revenue and profit, but can come from further engagement and user growth as well.
In its recent shareholder letter, management discussed reducing abuse and combating misinformation. Furthermore, the letter said that “we continue to enhance the global conversation on Twitter with live and on-demand video content.” That includes short videos and highlights, and consists of topics that touch on sports, entertainment, news and politics.
Of course, investors could go without the political risk. They could also go for growth that’s in-line with Twitter’s peers, not lagging. The technicals could be better too, even though shares continue to rally steadily off the lows.
Currently, TWTR stock is stalling at the 200-day and 50-week moving averages. Should the stock clear $34.27, it will do a number of things. First, it will propel TWTR stock over those key moving averages. Second, it will put the stock over the May high, allowing for a monthly rotation higher. From there, it puts a move into the upper-$30s in play.
If the technicals align, we like Twitter even more. But from a platform perspective, it’s hard to ignore the stock near $30.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.
