So far, it’s been a choppy year for Twitter (NYSE:TWTR) and Twitter stock. The shares dropped from $55 to $45 and then popped back up to $55 again. The current market capitalization is about $44 billion.
Of course, one of the main reasons for this choppiness has been the permanent suspension of former President Donald Trump from the platform. His base of followers was huge, at 88 million — and yes, he liked to tweet!
But there are some other reasons for the falloff in Twitter stock. For example, the markets have been volatile. There are also concerns that the user growth could come under pressure this year. After all, there will not be the tailwind of the election.
Yet despite all this, I still think the bull case for Twitter stock looks good. So let’s see why.
Brand and Scale
For the most part, online advertisers want significant reach when it comes to using a platform. It’s really a “numbers game” as the conversion rates are usually low.
As for Twitter, it is definitely among a handful of the top platforms that are top of mind for advertisers. There are about 187 million DAUs (daily active users), up 29% on a year-over-year basis.
Twitter is also a unique platform. It’s essentially a real-time broadcaster of news. In fact, this is something that rivals like Facebook (NASDAQ:FB) have attempted to replicate — but with little success. It’s a tough market to crack.
However, Twitter is not resting on its laurels. The company has been improving its service, such as with enhancements to the user experience and new features. For example, there is Twitter Fleets. This allows for tweets to last 24 hours. It’s a bit of a knockoff of Snap (NYSE:SNAP), but it’s the kind of feature that makes sense on the platform.
Moreover, Twitter is looking to expand beyond its ad-based business model. To this end, the company recently acquired Revue. Founded in 2015, the company operates a system that allows for the publishing of premium newsletters.
This type of offering seems like a pretty good fit for Twitter as there are many great content creators who are looking for monetization. According to a blog post from Twitter:
“With a robust community of writers and readers, Twitter is uniquely positioned to help organizations and writers grow their readership faster and at a much larger scale than anywhere else. Many established writers and publishers have built their brand on Twitter, amassing an audience that’s hungry for the next article or perspective they Tweet. Our goal is to make it easy for them to connect with their subscribers, while also helping readers better discover writers and their content.”
Besides this deal, Twitter has made some other interesting acquisitions. There was the purchase of Squad, which is a provider of social video, as well as Breaker, which is a social audio-broadcasting system.
In light of these improvements and moves, Wall Street analysts are getting more bullish on Twitter stock. KeyBanc’s Justin Patterson forecasts that revenues will increase by more than 20% per year through 2022 and has a $65 price target, which assumes 18% potential upside from current levels.
Bottom Line on Twitter Stock
It’s true that the removal of Trump will likely have an impact on traffic. But then again, the platform is more than politics. Twitter has a wide spectrum of use cases, such as for celebrities and athletes.
Something else: With Trump out of power, there is little threat that there will be the repeal of Section 230 of the Communications Decency Act. This essentially provides broad protections for social platforms. In other words, there is less legal uncertainty regarding Twitter.
Finally, Twitter stock is trading at a fairly reasonable valuation — and it seems that it has discounted the impact from Trump. Consider that the company is trading at about 21 times earnings, which compares to 31 times for Facebook.
On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence Basics, High-Profit IPO Strategies and All About Short Selling. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s.
