Twitter: The One Fact That Is No Longer Hidden

Despite its brand awareness, Twitter is not a mainstream product.

Feb 6, 2014 at 10:15AM

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

Ahead of tomorrow's Labor Department employment report for January, weekly initial jobless claims for the week ended Feb. 1 dropped by 20,000 to 331,000, below the 337,000 consensus estimate. That may partially explain why U.S. stocks opened higher on Thursday, with the benchmark S&P 500 and the narrower Dow Jones Industrial Average (DJINDICES:^DJI) up 0.75% and 0.81%, respectively, at 10:15 a.m. EST. Meanwhile, shares of growth darling Twitter (NYSE:TWTR) are down by more than 18% this morning after the company reported its first set of quarterly results yesterday.


Source: Twitter.

Yesterday morning, I wrote that "given the 150%-plus run-up in Twitter's stock price from its IPO, I have a hard time seeing how this afternoon's results will satisfy market expectations (although perhaps this is a failure of imagination on my part). Investors ought to be prepared for a share price decline, one that could be significant."

That very scenario is playing out this morning, despite the fact that Twitter pretty well beat Wall Street's expectations across the board, both in terms of actual results achieved during the fourth quarter and guidance for 2014.

This morning's sharp stock price decline highlights the gap that had opened up between analysts' expectations and those of investors. Indeed, following a huge post-IPO run-up, a stream of analysts had begun to downgrade the shares on concerns about valuation; going into yesterday afternoon's earnings announcement, analysts' median target price was $50, 24% below yesterday's closing price and in line with today's opening price. When analysts -- who are predisposed toward a cheery outlook -- turn bearish on a stock, it is past time for investors to revisit their bullish assumptions.

In this situation, the red flag concerned user numbers. Yesterday, Twitter announced that its number of monthly active users had grown just 4% during the fourth quarter, to 241 million, with just 1 million news users added in the U.S. Here are two points of reference to understand those numbers: First, Facebook achieved similar user growth in percentage terms in the fourth quarter despite starting from a base that was five times larger. Second, messaging app WhatsApp in December claimed 400 million monthly active users, having added 100 million users in the prior four months.

For the first time, it seems, investors are taking stock of the fact that Twitter is not a mainstream product -- and it may never be. As I have pointed out before, Twitter is less user-friendly than Facebook and its usefulness less is obvious -- these are barriers to widespread adoption. Twitter CEO Dick Costolo recognized this yesterday when he said "we want to do a better job of organizing content for our users around topic lines rather than just chronological lines. We believe that topic-based discovery on our platform will make Twitter easier to understand and use for everyone."

Twitter is hugely visible, in part because it is so popular with members of the media. However, that media "megaphone" cannot now mask the fact that it remains a niche product. Whether it can graduate to mainstream status will determine if it can grow into its valuation -- a task that has been made a bit easier with today's decline.

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Alex Dumortier, CFA has no position in any stocks mentioned; you can follow him on Twitter @longrunreturns. The Motley Fool recommends Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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