Twitter (NYSE:TWTR) is off to a bad start in 2021, but the worst may be over for TWTR stock. Thanks in large part to the social media company banning President Donald Trump in the final days of his presidency, Twitter stock is down about 8% so far in 2021.
Bloomberg reports that at the end of last week, Twitter stock was the worst-performing name in the S&P 500 in January. At its lowest point, it fell below $45.10, which it last traded at in 2013 when the company launched its initial public offering (IPO).
Argus Research reports that Twitter could lose several million daily active users (DAUs) — a key metric for advertisers — because of the company’s Jan. 8 decision to ban the @realDonaldTrump account. It said the move could also “further push Congress to move ahead with its anti-monopoly activities.”
Fortunately, there is evidence that Twitter stock may have hit bottom and is now beginning to bounce back.
There Was Plenty of Warning
Twitter’s banishment of Trump came as a surprise to many, although in hindsight there was plenty of warning that the company would take such an action.
In recent weeks, Twitter had been much more aggressive in blocking false content from Trump and his allies. Shortly after Election Day, Twitter began hiding some of Trump’s tweets behind warning labels. Later, the company began putting labels on any tweet that Trump and his allies posted that wrongly claimed he won the presidential election.
Just two days prior, on the day of riots at the U.S. Capitol, Twitter locked Trump out of his account for 12 hours after he called the people who broke into the Capitol “patriots.” The platform said the account would be permanently suspended if Trump continued to violate the company’s policies regarding civic integrity and violent threats.
But that warning fell on deaf ears. Just hours after regaining access to this account, Trump on Jan. 8 tweeted:
“The 75,000,000 great American Patriots who voted for me, AMERICA FIRST, and MAKE AMERICA GREAT AGAIN, will have a GIANT VOICE long into the future. They will not be disrespected or treated unfairly in any way, shape or form!!!”
He followed that up with another Tweet:
“To all of those who have asked, I will not be going to the Inauguration on January 20th.”
Twitter said that the two tweets were a violation of its Glorification of Violence policy. It also cited plans for further attacks on the Capitol and statehouse buildings on Jan. 17.
Twitter stock fell more than 6% on the next trading day after the ban was announced.
Looking Ahead With Twitter Stock
While things may be bad for Twitter now, there are some indications that the worst may be over already.
First, Twitter stock is beginning to bounce back, rising more than 6% just in the last week. Investors are slowly remembering that there’s a lot more to do on Twitter than follow Trump. There’s a new president and a new administration. And there’s an awful lot going on in the world these days that has nothing to do with Trump.
Second, the threat of government interference dropped as Trump left the White House. Trump in recent months had been pushing Congress to repeal Section 230 of the Communications Decency Act that was passed in 1996. Section 230 protects Twitter and other social media platforms from lawsuits if someone posts something illegal.
Trump was livid that Twitter began flagging his tweets after Election Day. And, as a result, the repeal of Section 230, which Trump tried to tie into the National Defense Authorization Act, was an obvious attempt at retaliation.
While Argus Research is correct to be concerned about a drop in daily and monthly active users, remember that Twitter has already taken steps to increase engagement.
On Nov. 17, for instance, the company rolled out Twitter Fleets, which are a posting option that only stays online for 24 hours. Tests in South Korea, Brazil, Italy and India show that people are more willing to use Twitter to share what the company calls “momentary thoughts” that will vanish.
The Bottom Line
Twitter will next report quarterly earnings in early February. Investors and analysts alike will be looking at how daily and monthly active users were affected by the post-Election Day warning labels. They’ll also want to know the early numbers on Fleets and if they were effective in driving DAUs higher.
Expect plenty of hard questions about how Twitter plans to maintain engagement in a post-Trump world. If DAU numbers aren’t there, or if analysts don’t like what CEO Jack Dorsey & Co. say about its 2021 plans, there could be some more volatility ahead.
But considering how Twitter stock is already bouncing off that low, I expect that TWTR will maintain its relevance in the long term.
Twitter stock has a “B” grade and a buy recommendation in my Portfolio Grader right now.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation.