At some point, nearly every tech stock settles down to a natural valuation. Despite its recent fall, Twitter (NASDAQ:TWTR) stock hasn’t.
TWTR stock still gets treated as if it’s a growth play, with a market cap of $42.75 billion, 11.5 times last year’s $3.7 billion revenue.
Twitter’s revenue growth seems to justify the valuation. First-quarter revenue of $1.04 billion was 28% higher than a year earlier, but profits remain scant, $68 million or 8 cents per share fully diluted.
When the company guided for minimal second-quarter growth TWTR stock plunged. They’ll open today somewhere around $54. Essentially right where it started the year.
Twitter bulls point to new features and deals as heralding growth. Twitter is about to start shaking down its users for cash, both for itself and other users.
A Closer Look at TWTR Stock
Twitter “tweets” were originally capped at 140 characters so they could be Short Message Service (SMS) messages. Those limits are long gone.
Twitter has streamed football games in the past. It now focuses on deals with leagues for highlights and “live look-ins.” It’s adding to that with Olympic and news content from Comcast’s (NASDAQ:CMCSA) NBC Universal unit, and a “live” music chart from Billboard Magazine.
If you think your tweets have value, you can connect a payment system to a $Cashtag and open what Twitter calls a “tip jar” letting people pay you for your genius. Or if you have as few as 600 users you may want to open a “Spaces” live audio feed, similar to features from Clubhouse, Facebook (NASDAQ:FB) and, soon, Spotify (NASDAQ:SPOT).
Twitter has also launched Revue, a version of Substack, which lets people launch paid newsletters connected to their Twitter accounts. But the most interesting news to me, as a newsperson, is its purchase of Scroll.
Scroll has been a $5/month subscription ad-blocking service, created in conjunction with publishers. Scroll could become a way for Twitter to break through publishing paywalls with a shared fee. Anything that can give users access through multiple paywalls would be a breakthrough.
Bad Behavior Phaseout
The most important non-financial news coming out of Twitter is its demand that users be nice.
Twitter has been putting millions of accounts on suspension, a process we ex-cons call “Twitmo.” It has closed the account of former President Trump and hasn’t let him in through the back door. There’s even a new feature to make you reconsider that mean tweet.
Ground zero for its new policies isn’t the U.S., but India. Here Twitter is walking a fine line against the government of Narenda Modi.
Twitter has taken down tweets critical of the government but suspended the account of an actress urging a violent government crackdown on West Bengal.
Twitter has been used to organize relief for India and the hashtag #COVIDSOS has become a barometer of human suffering from COVID-19.
This is the kind of dance Twitter will have to do everywhere if it wants to survive. It will cost Twitter money to do this dance. It was once said that on the internet no one knows you’re a dog, but now it knows your every bark, and governments want to bite users back. Twitter is ground zero for that confrontation.
The Bottom Line
Buying Twitter today is a bet it can extract money from its users, not just through advertising.
Twitter has 199 million of what it calls “monetizable users.” It hopes to have 315 million in 2023, with $7.5 billion in revenue.
If you buy a TWTR stock today, you’re already paying 5.7 times that revenue. Twitter expenses grew 21% in the most recent report, and Twitter handed out 11% of its revenue as stock-based compensation.
Twitter is a mature company trading like a growing teenager. I can find better bets.
At the time of publication, Dana Blankenhorn directly owned shares in FB.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com, tweet him at @danablankenhorn, or subscribe to his Substack https://danafblankenhorn.substack.com/.
