Will the stock market make a correction? If it does, then Twitter Inc (NYSE:TWTR) may be a good option to sell the stock or buy some put options.
Twitter is currently trading at $20.86 per share with 13.73 – 31.87 52 week range. What is wrong with this very promising micro-blogging and business idea and why does Twitter stock cannot meet its business, marketing and financial expectations? Judging a company by its stock performance is often interesting. Twitter has a very large audience like Facebook (NASDAQ:FB) but the main problem is that the twitter cannot fully take advantage of its members and make money with it. Net income for the last 3 years is negative, although it has a slight improvement diminishing losses.
Both profit margin and operating margin are negative and so does return on equity. Growth estimates of the company versus the industry are very promising but these are just estimates.
Personally I use and like Twitter a lot for marketing and business reasons. It is a great source of finding news and information, ideas for free. I have also been paid to promote posts. Obviously the company who paid me must have also made a profit. Where is the profit of Twitter?
There is something wrong with numbers. Looking at a 5 year period we can see a nice growth in sales/revenue .The same at gross income. But when all that matters is net income and profitability Twitter is not a good performer. Recently there is a focus on ads revenue from videos. Promising idea but what will be the results? About the technical analysis the stock is trading above its 50 period daily simple moving average which is bullish, and above the 200 daily simple average at 18.82. A bounce has already been made from the low price of 13.73 but is there momentum in that move? Soon in a few days we will have the quarterly results. Indications are that still EPS will be negative. Any negative EPS tell us one thing that the stock is purely bought from those who buy it based on growth expectations.
The competition from Facebook and other search engines is very intense as online advertising and internet marketing trend is expected to continue spending a lot of capital for promotion of online businesses. How much of the money will Twitter be able to capture? Social networks also as a trend will most likely persist. But competition from other big players like Instagram and Snapchat is also very intense. When there are so many options for a company to advertise the limitation of 140 characters per tweet seems a restrictive factor.
One main problem, an additional one that twitter has to face is that main US stock indices are now at very high prices. If a correction happens then stocks with not so great yearly performance like Twitter may face more selling pressure than other stocks with a better overall performance. And while a growth stock is expected to have a period of patience to deliver financial results the main question is mainly summarized to when will finally Twitter start having a profitability. Not just a one time event but a sustainable one. What Twitter really needs is an immediate and radical solution to turn its audience and user base to an attractive advertising and money making business. It has all the potential but numbers at least for now tell another story. Recently Twitter made a strong rally. But will it last or is it a nice opportunity to sell the stock?
Legal disclaimer : The writer does not have any Twitter stocks long or short and does not plan to trade Twitter for the next days.This is just analysis and not a trade recommendation.