Investors have been getting bullish with Twitter Inc (NYSE:TWTR), as the stock has climbed about 13% so far on the year. As usual, there have been the various buyout rumors, which have probably accounted for quite a bit of the gain.
Yet might all this be another example of over eagerness with Twitter stock? Perhaps there will just be more disappointment when the company reports its earnings on Thursday?
Well, the good news is that the bar is not set too high. The Street is expecting for Twitter earnings to come to 12 cents a share (on an adjusted basis) and revenues to hit $740.1 million.
By comparison, last year the company reported profits of 16 cents a share and a top-line of $710 million.
In other words, the consensus is for the revenues to grow by a mere 4.2%, which would represent the slowest ramp since TWTR became a public company. To put this into perspective, Facebook Inc (NASDAQ:FB) generated a massive $8.6 billion in revenues in Q4, up a sizzling 53%. So is it any wonder that Twitter stock has been mostly a bad investment?
Of course not.
Now, in terms of the quarter, TWTR stock could benefit from some catalysts. Some of those include the impact of the holiday season as well as the wild presidential election and the live-streaming of NFL games.
But such things will likely be temporary for Twitter stock. The fact is that the lackluster user growth will probably continue to weigh on the company. For example, Cantor’s Youssef Squali is forecasting only a 2 million net monthly active user increase in the base to 319 million, up 4.6%. This would be roughly the same as Q3’s growth rate.
But none of this should be a surprise. TWTR has been beset with frequent turnover in the executive ranks. It also does not help that the CEO, Jack Dorsey, spends time as the head of Square Inc (NYSE:SQ).
Hey, do Zuckerberg or Snap’s Evan Spiegel side gigs? No, because they realize that the online world is brutally competitive.
Bottom Line on Twitter Stock
Actually, the Snap IPO may put even more pressure on Twitter stock. Investors will soon have another high-growth play to put their money into. As a result, TWTR stock will become more marginalized.
Now. Dorsey has talked about improving the service and making it easier to use. But so far, the actions have fallen flat. Granted, at the start of the New Year, he asked users for feedback. Yet much of it was kind of vague. Instead, users would rather spend their time on platforms like FB, Instagram, WhatsApp and Snapchat. It’s that simple. For the most part, TWTR has failed to keep up with the latest trends, such as with chat and video.
Unfortunately, when a consumer tech company gets into this situation, it is tough to turn things around. Just look at classic examples like Yahoo! Inc. (NASDAQ:YHOO) and AOL. They spent years trying to find ways to juice up user numbers — but nothing seemed to work.
Part of this is that the brand quickly loses its luster. But there is something else: resources start to dwindle as cash flows drop.
In fact, both seem to be issues with Twitter stock. If anything, the brand appears kind of crusty and is also associated with harassment and bullying. Oh, and in terms of the core operations, the company has been reducing the workforce and unloading various segments, such as the recent sale of Fabric to Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG).
The likely end-game for TWTR stock, of course, is a sale of the company. But of course, the problem there is that when the company put itself up on the block last year, there was little interest.
This does not means things are absolutely hopeless. There are certainly investment opportunities with TWTR stock — but they are probably mostly short-term trades.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities, and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
