Did Twitter Bottom on Tax Day?

Twiltter shares have performed poorly since reporting fourth-quarter results. Now that it has come back to earth, is it a buy?

Apr 19, 2014 at 3:00PM

The Twitter (NYSE:TWTR) IPO was much more successful than its performance after the first earnings call as a public company. In management's defense, it may have been impossible to live up to the hype.

As mentioned in the article Twitter, Another Successful Goldman IPO, there were two issues that investors locked in on that should be viewed as speed bumps in the move forward rather than a reversal of course. These speed bumps brought expectations down, and there are now signs of capitulation. The company has taken shareholder-friendly steps to stabilize its stock price and offer a new revenue stream, which may provide stability going forward. It may be hard to justify the valuation from an earnings perspective, but this also might be the only other opportunity to buy shares close to the post-IPO low.

Stiff competition
Facebook (NASDAQ:FB) tracks the greatest number of monthly active users at 1.2 billion, which dwarfs Twitter's 241  million, according to SEC filings. The bigger issue may be sell-through, however. In both cases, the link to sell-through has been has difficult to quantify. Priceline CEO Darren Huston recently discussed in an interview with Bloomberg how Google (NASDAQ:GOOG) has the most tangible link to sell-through when compared with Facebook and Twitter. He went on to say that he has an open wallet for Facebook and Twitter if they can prove their worth. However, like Google, Twitter has the ability to insert related links into topical searches so this connection to sell-through may be clearer in the future.

Slowing monthly active users
The biggest issue with the fourth quarter was monthly active users, or MAU, slowing to 9% sequential growth. Slowing growth in a company with no profits is a huge concern, but there is a strange issue associated with MAU. Twitter doesn't count all of its users. In the company's 10K, in the key metrics section, you'll find the following language:

We define timeline views as the total number of timelines requested and delivered when registered users visit Twitter, refresh a timeline or view search results while logged in on our website, mobile website or desktop or mobile applications (excluding our TweetDeck and Mac clients, as we do not fully track this data ).

MAU may be higher than reported
If the company isn't tracking all of the users that log in, it's possible that the MAU being reported is understated. It would be reasonable to assume that these will be tracked in the future and the resulting data might prove to be a catalyst.

Since advertising clients pay only for click-throughs, it's likely that this won't impact profitability over the long term. In the future, as the industry matures, payment levels will be about results -- sales, not marketing.

New revenue source
In mid-March, TechCrunch outed Ben Whitelaw, a Twitter employee testing promoted accounts. Promoted accounts will join promoted Tweets and promoted trends as ways for Twitter to generate income. Essentially, it allows a person to build a Twitter following faster by more widely distributing the user's tweets.

Expectations have come in, but valuation is still high, creating an interesting dilemma for someone who likes the company almost as much as cash flow. We should have more information soon, since Twitter is reporting quarterly results on April 29. The consensus for monthly active users is 255 million. In addition to revenue and EPS, this will be the metric to watch.

Not convinced Twitter is poised for big growth? Here are 6 stocks that are
They said it couldn't be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.


David Eller has no position in any stocks mentioned. The Motley Fool recommends Facebook, Google-Class C Shares, and Twitter. The Motley Fool owns shares of Facebook and Google-Class C Shares. 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers