Twitter Inc (NYSE: TWTR)
Twitter is having an incredibly strong trading session today. Climbing off of recent lows, the stock has gained well over 6% so far today. As a result of the strong growth, investors are getting excited, wondering if they should get in on the frenzy. While gains always look appealing, I wouldn’t touch TWTR with a barge pole. Today, we’ll talk about why!
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Why TWTR Fell So Hard Recently
Recently, Twitter took a dive, and for a very good reason. The company reported quarterly results that proved to disappoint investors. In terms of earnings per share, the company did relatively well. However, on a GAAP basis, it still realized losses. While earnings came in above expectations, revenue proved to be a miss. However, neither of these aspects were the big story when it came to the quarterly results.
The big story in the quarterly results from TWTR was user growth. The company has been struggling for a long while as a result of their inability to attract new users to their platform. By the end of the quarter, the total monthly active users on the social network came in at 313 million. This, compared to 310 million realized in the same quarter one year ago, shows dismal growth of less than 1%. In the social media world, without user growth, you have nothing, and less than 1% year-over-year isn’t going to cut it!
Why The Stock Is Gaining Today
There’s no denying the fact that TWTR is having an incredibly strong trading session today. Currently (3:16), the stock is trading at $17.62 per share after a gain of $1.20 per share (7.31%). After a thorough search, I couldn’t find any positive fundamental data that is leading to the gains. So, I expect that the gains are being caused by nothing more than investor excitement.
At the end of the day, investors see Twitter as a stock that was battered. As a result, the value of the stock dropped dramatically. So, investors see it at a discount at the moment. As more and more join the frenzy, the price of the stock continues to push higher.
This One Is Going To Drop Like A Rock!
With no fundamental data showing a reason for such strong gains, I’m expecting that when TWTR reaches resistance, it’s going to drop like a rock. The reality is that, at the moment, this is one of the worst investments on the market! When we talk about Twitter, we’re talking about a company that is seemingly refusing to work on their biggest issue. While we know that user growth problems led to the resignation of the last CEO, Jack Dorsey seems to take no interest in finding a solution.
One thing TWTR is working on quite a bit is advertising. The company is doing everything it can to bring higher revenues from the users it currently has. After all, with user growth stalling, they can’t expect more users to lead to more revenue. However, this creates a big problem. In order to drive more revenue, TWTR will have to show more adds, and that’s going to upset users! At the end of the day, user growth can very quickly turn into user declines under the company’s current plan. With that said, until user growth is under control, I will maintain my overwhelmingly bearish opinion on the stock.
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What Do You Think?
Where do you think TWTR is headed moving forward and why? Join the discussion at TalkTRENDZ!
[Image Courtesy of Flickr]