It has been a troubled year so far for social media titan Twitter (TWTR). The company is in the middle of a theatrical lawsuit with Tesla CEO Elon Musk, who agreed to buy the social media company for $54.20 per share in April. The famed entrepreneur has since tried to withdraw from the deal over concerns that Twitter withheld important information regarding spam accounts. As of this writing, the stock trades at roughly $40 per share and is down about 10% year to date.
Macroeconomic conditions aren't exactly ideal for the social media leader, either. Due to high inflation and the Federal Reserve's commitment to interest rate hikes, companies are cutting advertising budgets and this is having an adverse effect on ad-driven businesses like Twitter, which generates the bulk of its revenue via digital advertising.
Should investors pounce on Twitter stock today? Let's take a look.
The roller-coaster ride continues
In late July, Twitter reported quarterly results showing that its top line fell 1.2% year over year to $1.18 billion and it notched a net loss of $270 million, reversing course from a net profit in both the year-ago period and the previous quarter. This helped perpetuate Twitter's history of inconsistent profitability. On the bright side, the company's average monetizable daily active users expanded 16.6% to 237.8 million. However, this figure is far off its goal to reach 315 million active users by 2023.
Management had a variety of excuses for the quarterly performance. In addition to uncertainty linked to the Musk deal, management mentioned the softness in advertising spend as a result of the current economic environment. The latter should have come as no surprise to investors. After all, we've witnessed social media peers Meta Platforms and Snap tackle the same problem recently. On average, Wall Street analysts now forecast Twitter's 2022 top line to grow just 2.3% year over year to $5.19 billion. Next year, they expect its revenue to climb 13.3%. However, in light of the ongoing macroeconomic conditions, investors should take those estimates with a grain of salt.
But is the stock a buy?
At the moment, the social media stock has a price-to-sales multiple of 6.1, which is near three-year lows. It seems as though the volatility in Twitter stock will continue until the Musk situation is resolved and macro headwinds sort out. I'd recommend hanging back and waiting for the digital advertising market to settle into growth again and for the legal battle with Musk to come to an end before deciding whether to buy shares. I don't think it's wise to buy a stake in Twitter until its long-term picture becomes clearer. There are far better investment options available in today's market.