Twitter: Investing Strategies for 2019

Twitter is a micro-blogging social media company. It has around 330 million monthly active users. In the last quarter of 2017, Jack Dorsey, the company’s CEO and co-founder, led it to the first profit in its history. Dorsey guided Twitter in its start-up stage; he was fired in 2008 and came back in 2015 in order to turn around the company. (1) His comeback story recalls that of Steve Jobs.

People mainly use Twitter to follow and interact with celebrities, inform themselves and express opinions about breaking news (particularly politics, sport and show business). Twitter is Donald Trump’s favorite social media platform. The president of the U.S. is prone to criticize mainstream media for their political biases, calling many of them “fake news.” One of Twitter’s success factors is that it allows people to inform themselves directly at the source, bypassing newspapers and TV news channels.

The platform is used across the world, except for a few countries. In fact, access to Twitter has been blocked permanently in China, and intermittently in other countries like Iran, Libya, Pakistan, Turkey and Syria.

Twitter, like Alphabet (Google), Facebook and Snapchat, makes most of its revenue via advertising services.

Twitter’s history

Twitter was created in March 2006 by Jack Dorsey, Noah Glass, Biz Stone, and Evan Williams while they worked at a podcasting company called Odeo. Afterwards, they bought Odeo and spun off Twitter in a new firm. The company started gaining traction in 2007. In 2008, Dorsey, Twitter’s CEO, was fired. In 2012, Twitter acquired Vine, but even though the short-video-sharing app was a great success, it failed to make money. Consequently, in 2016, the parent company decided to shut it down. In 2013, Twitter was listed on the NYSE. In 2015, Dorsey came back as CEO in order to make the company profitable. Twitter made its first profit in the fourth quarter of 2017.

Twitter’s financials

As you can see from the chart below, Twitter’s revenue is slowly growing.

This is due to the slow growth in monthly active users.

Twitter is finally starting to make money; the fourth quarter of 2017 was its first profitable quarter ever.

The firm’s advertising revenue is very low compared with Alphabet and Facebook.

Twitter’s stock performance

Below you can see Twitter, Facebook and Snap’s stock performance since Snap’s listing. Twitter has managed to outperform the plummeting Snap, but is unable to keep up with Facebook. This is mainly due to the latter’s ability to attract businesses that want to promote their brands and products. Twitter has so far failed to induce enough companies to invest in its advertising platform. In fact, firms that buy ads on Twitter have noticed that these don’t generate the same return on investment that Facebook or Google ads offer.

After Dorsey’s return as Twitter’s CEO, the stock experienced a two-year sideways drift. Only after the rumors about a possible profitable quarter did the stock price start to move upwards.

As of today, as you can see from the chart below, Twitter’s stock price displays a head-and-shoulders pattern. This is considered a strong trend reversal signal, even though it hasn’t fully formed yet.

An analysis of the 50- and 200-day moving averages (MA) shows the presence of the so-called “death cross,” meaning the intersection of a downward 50-day MA with the 200-day MA. This is also considered a bearish signal. We have to consider, though, that this pattern sometimes occurs with 10–15% stock price dips. So, unless the price keeps on going down, we can’t yet say with certainty if there will be a trend reversal.

Possible investing strategies for 2019

Twitter’s P/E ratio is equal to 96 (as of 10/24/2018). This value is very high, considering that the firm has a slow growth and small profit margins.

The firm has very high market multiples, its growth is slowing down, and it has never paid a dividend. Twitter recently released its first quarterly profit; but this was too little and too late compared to market expectations and to Facebook and Alphabet, which are raking in billions in profit quarter after quarter.

The volatility of the stock price makes Twitter a good target for swing and day trading.

twitter possible strategies for 2019

Trivia

The tweet below is the most retweeted tweet of all time (3):

What do you think about Twitter’s future? Let me know in the comment section below.

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References

1. https://www.nytimes.com/2015/10/06/technology/jack-dorsey-returns-to-a-frayed-twitter.html. [Online]

2. https://en.wikipedia.org/wiki/Twitter. [Online]

3. https://en.wikipedia.org/wiki/List_of_most-retweeted_tweets. [Online]

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