The ‘New’ Case for Twitter, Inc. (NYSE:TWTR) Stock
Twitter (NYSE:TWTR) stock rallied nicely for most of 2019, and received a healthy valuation as a result. In fact, on an earnings basis, Twitter stock was valued at a substantial premium to larger peers in social media and online advertising.
ut Twitter’s disappointing third-quarter report suggests that premium wasn’t deserved — and still isn’t. Investors aren’t going to pay up for single-digit revenue growth and compressing margins. There are other plays in social media and or online advertising doing better at the moment.
That creates a simple, and significant, problem for Twitter stock at the moment. It’s still receiving that premium to those same peers, if not quite to the same extent it did a little over a month ago. And so Twitter either needs to re-inspire confidence quickly, or TWTR stock could have more downside ahead.
The ‘New’ Case for TWTR Stock
That said, there was one underlying risk for TWTR stock. In late August, I called out the company’s elevated operating expenses as a risk to margins. It was guidance for similarly high spending on the health of the underlying platform that led FB stock to the largest one-day loss of value in the history of the stock market last year.
Through the first half of the year, Twitter’s revenue growth had been enough to offset that spending. That changed in the third quarter. Revenue grew just 9%, thanks to lower per-user monetization. Guidance for the fourth quarter was weak as well.
In both cases, Twitter called out “bugs” in its mobile application promotion product and issues with “certain personalization and data settings” as headwinds to revenue. But those issues only hit revenue growth by “3 or more points” in Q3 and are guided to an impact of “4 or more points” in Q4.
Backing that out, revenue grew 13% in Q3 and at the high end of guidance would increase 15% in the fourth quarter. Both figures are a notable deceleration from the first half. More importantly, both materially trail the outlooks for Facebook and Google.
In other words, Twitter now isn’t growing as fast as its larger peers, let alone Snap. It has the same spending problem that sent Facebook stock tumbling last year. Regulatory risk might be lower, but there’s still the question of the so-called “President Donald Trump effect.”
That doesn’t sound like the profile of a stock that should trade at a premium. Yet even one-third below September highs, that’s exactly how Twitter stock trades.
Twitter Still Looks Expensive
Backing out a bit over $5 per share in net cash, TWTR stock trades at roughly 27 times 2020 consensus earnings per share estimates. Both GOOG stock and FB stock sit closer to 20 times.
Again, there was a case that TWTR deserved a premium to those names before the report. Afterwards, that’s a much more difficult case to make. Revenue growth is decelerating. The margin opportunity may not be what was hoped if spending on platform health has to keep rising. User growth has impressed in recent quarters, but it was stagnant before last year and may stall out again.
It’s difficult to pound the table for Twitter stock over alternatives in its group, let alone across the market. In fact, it’s probably easier to argue that TWTR should be valued closer to the 20x earnings-plus-cash figure assigned FB and GOOGL, which suggests a share price closer to $24, another 20% downside from here.
The only way Twitter holds $30, let alone rebounds, is if management can again convince investors that a premium to peers and to the market is merited. If the company can prove that the bugs and settings problems are short term and return to growth, that might be enough. But that’s still a big “if,” and a catalyst that won’t arrive until February. In the meantime, Twitter stock looks like a name to avoid at best.
Overall, the bias in prices is: Downwards.
Note: this chart shows extraordinary price action to the downside.
The projected upper bound is: 34.69.
The projected lower bound is: 27.16.
The projected closing price is: 30.93.
A white body occurred (because prices closed higher than they opened).
During the past 10 bars, there have been 7 white candles and 3 black candles for a net of 4 white candles. During the past 50 bars, there have been 23 white candles and 27 black candles for a net of 4 black candles.
Three white candles occurred in the last three days. Although these candles were not big enough to create three white soldiers, the steady upward pattern is bullish.
Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.
One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 95.9900. This is an overbought reading. However, a signal is not generated until the Oscillator crosses below 80 The last signal was a buy 18 period(s) ago.
Relative Strength Index (RSI)
The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 46.96. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a buy 4 period(s) ago.
Commodity Channel Index (CCI)
The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 183.This is an overbought reading. However, a signal isn’t generated until the indicator crosses below 100. The last signal was a buy 8 period(s) ago.
The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 12 period(s) ago.
Rex Takasugi – TD Profile
TWITTER INC closed up 0.210 at 31.170. Volume was 3% below average (neutral) and Bollinger Bands were 66% narrower than normal.
Open High Low Close Volume___
31.010 31.350 30.940 31.170 2,978,491
Short Term: Overbought
Intermediate Term: Bearish
Long Term: Bearish
Moving Averages: 10-period 50-period 200-period
Close: 29.87 35.18 36.61
Volatility: 18 68 52
Volume: 3,123,356 3,260,747 2,968,267
Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.
TWITTER INC is currently 14.9% below its 200-period moving average and is in an downward trend. Volatility is extremely low when compared to the average volatility over the last 10 periods. There is a good possibility that there will be an increase in volatility along with sharp price fluctuations in the near future. Our volume indicators reflect volume flowing into and out of TWTR.N at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bearish on TWTR.N and have had this outlook for the last 51 periods.