Twitter, Inc. (NYSE:TWTR) performance has been outstanding, but is that enough at $40?
I’ve been a skeptic toward Twitter (NYSE:TWTR) for some time now, and simply put, I’ve been wrong. Twitter stock has seen choppy trading of late, but the broader trend is clear. TWTR shares are up 28% over the past year and have more than doubled since the beginning of 2017.
It’s worth noting that TWTR still trades below its first-day close after its 2013 initial public offering. That’s a cautionary tale for investors currently considering more recent IPOs like Lyft (NASDAQ:LYFT) and Beyond Meat (NASDAQ:BYND). But it might also signal caution for Twitter stock itself.
Admittedly, the news for the social-media firm has been good, particularly of late. Twitter’s execution has improved notably since I fretted about the company’s management exodus back in early 2017. It turns out, or so it seems, that the new managers have done a much better job than their predecessors. Fundamentals are improving, with a strong first-quarter report last month following a similarly solid fourth-quarter report in February. Revenue growth is accelerating, and Twitter usage is rising.
But valuation here isn’t cheap or even close. And that still seems a problem for TWTR stock at $40. Investors have let their expectations run wild in the past, both in 2013 and in the summer of 2018. This time, they might be right. However, those investors have to be correct on what looks like a very narrow bull case.
The Case for Twitter Stock
Despite running at nine-month highs, a solid bull case exists for TWTR stock. The social-media firm has improved in core metrics, particularly usage. Daily active users — or what Twitter calls “mDAUs” — increased 8% year-over-year in Q1. Overseas, the YOY growth was an even stronger 12%. On an average day, Twitter sees 133 million users.
More importantly, U.S. revenue increased 25%, while constant-currency international revenue climbed 15%. Both metrics outpaced user growth by a wide margin, improving revenue per user. Plus, Twitter is attracting users that actually engage with the platform. At the same time, the company is getting more money per user (and possibly per visit) from advertisers. That’s a reflection of the 23% increase in ad-engagement. Even better, the cost per engagement fell only 4%.
Spending is rising, a key risk I highlighted after the Q4 report. But that’s not necessarily a bad thing. Increased video content is driving costs higher, but video also drives higher ad spend and better-quality advertisers. R&D spend is driven in part to create a cleaner platform, and Twitter is having success on that front. Sales and marketing and G&A (general and administrative) expenses are rising roughly in line with revenue growth.
From a broad standpoint, the performance of late — and particularly in the last two quarters — is the bull case for Twitter stock coming to life. The company is showing why social-media businesses have been so valuable.
It’s also confirming why investors were at one point in 2013 willing to pay over $60 per share for TWTR. Platforms attract more users, and those folks inspire others to jump onboard. Advertisers, and then better advertisers, follow. And growth continues, potentially for years.
Overall, the bias in prices is: Upwards.
Note: this chart shows extraordinary price action to the upside.
By the way, prices are vulnerable to a correction towards 35.37.
The projected upper bound is: 41.52.
The projected lower bound is: 35.98.
The projected closing price is: 38.75.
A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 6 white candles and 4 black candles for a net of 2 white candles. During the past 50 bars, there have been 25 white candles and 25 black candles.
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 57.4061. This is not an overbought or oversold reading. The last signal was a sell 8 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 59.20. This is not a topping or bottoming area. However, the RSI just crossed below 70 from a topping formation. This is a bearish sign. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a sell 0 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 21. This is not a topping or bottoming area. The last signal was a sell 4 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 10 period(s) ago.
Rex Takasugi – TD Profile
TWITTER INC closed down -1.610 at 38.620. Volume was 7% above average (neutral) and Bollinger Bands were 66% wider than normal.
Open High Low Close Volume___
39.900 40.130 38.120 38.620 3,723,224
Short Term: Overbought
Intermediate Term: Bullish
Long Term: Bullish
Moving Averages: 10-period 50-period 200-period
Close: 39.50 34.14 32.56
Volatility: 39 49 68
Volume: 3,699,834 3,293,867 4,185,624
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 18.6% above its 200-period moving average and is in an upward trend. Volatility is high as compared to the average volatility over the last 10 periods. Our volume indicators reflect volume flowing into and out of TWTR.N at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bullish on TWTR.N and have had this outlook for the last 34 periods. our momentum oscillator has set a new 14-period low while the security price has not. This is a bearish divergence.