Twitter (TWTR) has been a stock that investors have loved to hate. Four years after its IPO, the stock had lost more than half of its value despite being a very popular social media site that had a lot of potential growth. The company's inability to turn a profit had kept investors away. However, that's changed now, and turning a profit has become the norm for the tech stock. But unfortunately, with the company falling short of expectations for both earnings and revenues in its most recent quarter, the stock has yet again fallen into another tailspin.
The good news is that for investors, this could be a good opportunity to pick up the stock, which is now not far from its 52-week low.
Why investors shouldn't be overly concerned with the earnings miss
While it's definitely disappointing that the company's revenues were up just 9% and its operating income was cut in half from a year ago, if we take the company at face value, then these may only be temporary headwinds impacting Twitter over the near term. In its letter to shareholders, the company stated, "In Q3 we discovered, and took steps to remediate, bugs that primarily affected our legacy Mobile Application Promotion (MAP) product, impacting our ability to target ads and share data with measurement and ad partners."
The company also says seasonality played a much bigger role as well and that the issues it faced during the quarter accounted for a loss in revenue growth of at least three points, and lower-than-expected revenue was the reason for its lower bottom line as well. While the company still believes the issues incurred in Q3 will carry over into future quarters, what's important is that it's not likely to be a long-term problem for Twitter.
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What should be encouraging is that the company reported 145 million monetizable daily active users (mDAUs), which was up 17% year over year and the third straight quarter that saw double-digit growth in that metric. It's a strong sign to advertisers that suggests there is still a lot of growth and potential on the social media platform.
Banning political ads could win over more users, leading to more growth
Twitter recently announced that unlike its rival Facebook, it would be banning political ads from its platform. While it may seem like a bad move to turn away ad revenue, in 2018 political ads generated just $3 million in revenue for the company. In the meantime, the stock could win over a lot of users who may have become less trusting of Facebook, especially with the company refusing to do any fact-checking on political ads.
With "fake news" being an increasingly sensitive issue for users, Twitter could become a more trusted social media platform by not having political ads potentially spreading misleading information. It looks like a low-risk move that could pay off in a big way for Twitter, especially as political campaigns heat up.
The price is right
One of the benefits of a stock that's fallen in price -- it's a lot cheaper to buy. At just 14 times earnings, Twitter stock could be a bargain for the growth that it still likely has left. Although it's down 26% over the past month, those losses all largely came as a result of the company's earnings release and in the days following. Since then, the stock has been relatively stable, and that could be a sign that a bottom has been reached.
Key takeaways for investors
Twitter's stock could prove to be a bargain today. Not only is the company profitable and generating lots of good cash flow, it still has a growing number of mDAUs, which should contribute to a lot more growth down the road. Despite the challenges the company is facing today, Twitter looks like it's in a good position to overcome them and could become much stronger in the process. Long term, Twitter could be a solid buy not only for growth investors but value-oriented ones as well.
