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Social Network Vs. Information Network: Why Twitter Is 'Dramatically Undervalued' Compared To Facebookat Benzinga.com (Fri, 11:01AM)
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- The market continues to misunderstand the audience reach of Twitter in comparison to Facebook and LinkedIn.
- Contrary to the news of the week, Instagram is not larger than Twitter.
- Investors should view the recent slump in the stock as a buying opportunity.
- Decelerating user growth is troubling given the somewhat low global penetration of Twitter’s social media platform.
- The company has been incurring huge and increasing operating losses over the past several years, which is unlikely to change any time soon.
- As the company burns through its cash, it will be forced to raise more by selling stock (causing further dilution) and/or taking on more debt.
- Twitter’s debt received a “junk” rating from credit agency S&P; its common shares should also be rated as speculative junk.
- Twitter shares are grossly overvalued at present levels and have 35%+ downside potential over the next 12 to 18 months.
- Twitter has fallen about 20% in the last three months.
- Criticism of Dick Costolo is rampant, and his family trust just unloaded half their shares.
- Despite the speculative valuation, we have a small long position, and we're giving the company another quarter before we re-evaluate our position.
- Ongoing insider sales at Twitter primarily a result of options-weighted executive compensation.
- November insider sales from seven insiders represent nearly 1% of TWTR’s market cap and the biggest month of insider sales since August.
- In particular, CEO Dick Costolo has divested over 50% of the shares sold this month.
- The financial world learned of Twitter’s interest in acquiring an undisclosed company after CFO Anthony Noto accidentally sent out a tweet intended to be private for a Twitter colleague.
- Sources have reported that the company is selfie-app Shots, an app heavily promoted and funded by celebrity Justin Bieber.
- If acquired, the Shots app may provide Twitter another avenue to boost user growth, but it depends on how the company uses the Shots resource.
- Other companies, like Facebook and Yahoo, may also be able to integrate Shots into their business plans.
Twitter Expands Direct Messaging To Include Public Tweets
- Twitter has plenty of growth levers to pull that will drive revenue significantly higher.
- The logged-out audience total pushes the total consumers of Twitter data towards 800 million monthly visitors.
- Twitter has a lower forward PS ratio than other Internet giants, suggesting a better value proposition than most think.
How Twitter Became, By Definition, A Fan Favorite Stock
- Twitter will continue to differentiate itself away from Facebook.
- The stickiness of Twitter is mostly driven by how it's an alternative platform to Facebook that's more brand and celebrity friendly.
- Given the growing amount of content from famous public figures, and the sheer penetration into this demographic, Twitter's longevity is more or less guaranteed.
- Twitter also offers significant advertising potential, as it is a relevant tool for users when buying products and services.
- Advertisers can pursue a multitude of strategies on Twitter to drive advertising efforts like celebrity endorsements, brand-centric pages, and customer interaction to drive earnings growth.
- Aggressive traders may fancy Twitter stock as an obvious short candidate. Twitter, as a publicly traded corporation, has yet to turn a profit.
- The low interest rate environment has fueled the second coming of "irrational exuberance" in Web 2.0 stocks.
- Twitter short sellers would be exposed to a short squeeze and staggering losses if the social media company were to actually turn a profit over the next year.
- TWTR's investor day was uninspiring with bullish guidance and optimistic outlook.
- 60k ad customers makes me question the value of TWTR to a typical SME customer.
- Focus on core upgrade is positive, but better execution is needed.
Twitter Has A Compelling Ten-Year Growth Trajectory
- Twitter will drive revenue growth through ad load increases, higher levels of ad engagement, growth in active users and additional business opportunities.
- The company offers a scenario where revenue reaches $14 billion in 2024.
- After factoring long-run cost assumptions, net income will exceed $2.2 billion in 2024.
- Over the next ten-years the stock will grow into its admittedly high valuation.
- I estimate that by 2024, Twitter's market cap (conservatively speaking) will exceed $56 billion.
- Standard & Poor's rates Twitter debt as speculative.
- The stock remains a Strong Buy.
- While a speculative rating on the debt wasn't anticipated in the original thesis, the long-term potential of the stock is not altered by this move.
- S&P issued a double-B minus credit rating for Twitter.
- Double-B minus is three notches into non-investment grade territory.
- If Twitter's credit rating is three notches into junk territory, what does that say about the stock?
Twitter Remains The Most Misunderstood Company In Tech
- Twitter is not a social media company; it is a mobile advertising company.
- Twitter has invested heavily to deliver tools that let developers understand and monetize apps.
- Twitter has huge ambitions for growth it is on track to meet.
Mobile Is Twitter's Story... And Twitter's Story Is Mobile
- As its recent earnings report and Wednesday's Analyst Day proves, Twitter's story begins and ends with mobile engagement.
- However, a focus on MAU and user growth has weighed on the stock, despite the great story on mobile.
- Twitter needs to steal ad dollars from Google and Facebook; that's the story investors should pay attention to.
- Facebook and Twitter may go through a period of consolidation.
- This is healthy, as the two stocks have seen significant runs.
- Fundamentally the two businesses are solid and have meaningful growth prospects going forward.
- However, the short term has been unpredictable, therefore investors have to buy-in with an ownership mentality.
Update: Twitter Q3 Earnings Re-Rate Market Expectations
- TWTR posted in-line EPS and beat on the top line, but shares crumbled.
- The selloff wasn’t expected, but we note that TWTR is still a long-term play.
- We didn’t see the miss coming but are encouraged by the company’s new commitment to provide realistic guidance.
- Earnings projections came in as expected, except revenue projections for the fourth quarter, which were below Wall Street projections.
- The P/S ratio and P/B ratio are far too high, showing overvaluation in this stock.
- The business model is flawed. Advertising revenues will level off soon.
Wed, Dec. 17, 11:03 AM
- Pivotal Research's Brian Wieser has upgraded Google (GOOG +0.9%) and Twitter (TWTR +1.6%) to Buy in the wake of yesterday's selloff. His targets are respectively $610 and $42.
- Wieser: "We have been generally negative on Google since early 2013, given our ongoing concerns about margin erosion, intensive capital investment plans and diversification (also capital intensive often) away from the company's core advertising business." However, he now admits Google has grown faster than expected, and that margin erosion has been less than feared.
- Wieser is still concerned about a mix shift towards (lower-margin) display ads from search ads, and wishes Google (has no dividend or buyback program) would return some cash to shareholders. But he thinks those issues are now priced in.
- Regarding Twitter, Wieser still believes its core service "has only niche market potential at maturity," but considers the recent selloff overdone. He's also concerned about Twitter's management turmoil, arguing it could be a sign Twitter is "still trying to become something bigger than it presently is”
- Google made new 52-week lows yesterday following a JPMorgan target cut. Twitter closed near its lowest levels since June.
Tue, Dec. 16, 3:59 PM
- Internet stocks have posted substantial losses after a morning market rally proved short-lived. The Nasdaq is down 1.2%.
- In addition to Google, which has made new 52-week lows, Facebook (FB -3%), Twitter (TWTR -4.7%), Amazon (AMZN -3.5%), and Netflix (NFLX -3.2%) are among the underperforming names. Other decliners: Z -5.5%. TRLA -5.4%. MELI -5.4%. ZNGA -4.9%. ZU -3.2%. ANGI -3.4%.
- The selloff comes even though Goldman upgraded its rating for the sector to Attractive from Neutral today. The firm noted Internet stocks are collectively down 16% over the last 12 months (maybe 18%-19% after today), and that forward EV/EBITDA multiples have contracted significantly.
- Internet/social media ETFs: FDN, PNQI, SOCL
Mon, Dec. 15, 9:51 AM| 3 Comments
Mon, Dec. 8, 12:54 PM| 3 Comments
Fri, Dec. 5, 6:33 PM
- Less than eight months after joining Twitter (NYSE:TWTR), former Google Maps chief Daniel Graf has left the company.
- Graf was hired to be Twitter's consumer products VP. However, in October, that job was handed to ad product chief Kevin Weil, thereby making him Twitter's fifth product chief in five years. The WSJ reported at the time Graf would "focus on certain strategic initiatives, starting with geo and location features," going forward.
Wed, Nov. 26, 12:58 PM
- Facebook (FB +2.1%) and Twitter (TWTR +2.6%) are rallying on a sleepy pre-Thanksgiving trading day. The companies have respectively seen 21.9M and 16.1M shares traded thus far vs. 3-month averages of 38.3M and 28.1M.
- Several other Internet stocks (both U.S. and Chinese) are also moving higher. Z +2.3%. TRLA +3%. BITA +5.1%. EJ +6.7%. SFUN +2.6%. VIPS +3.3%. SOHU +2.9%.
- Facebook is at its highest levels since selling off in late October due to its Q4 revenue and 2015 spending guidance.
Tue, Nov. 25, 5:53 PM
- CNBC reports Twitter (NYSE:TWTR) has held talks with Shots, a Justin Bieber-backed developer of iOS/Android apps for taking and sharing selfies.
- Shots reportedly has 3M+ users, nearly 2/3 of whom are women under 24. Twitter, meanwhile, has built a huge base for its Vine 6-second video service.
- The report comes a day after CFO Anthony Noto accidentally tweeted out an apparent direct message about M&A talks. Noto: "I still think we should buy them. He is on your schedule for Dec 15 or 16 -- we will need to sell him. i have a plan."
- Re/code also reports Twitter has talked with Shots.
Tue, Nov. 25, 2:00 PM
- Twitter Offers allows advertisers to promote discounts for offline goods and services that can be added to a user's credit or debit card, and automatically redeemed when that card is used in a physical store.
- Since the card-linking process takes place on Twitter's (TWTR -1%) site and apps, Twitter asserts advertisers will be able to precisely measure the ROI yielded by an Offers campaign. The company will be testing the solution with "a handful of brands" during the holiday season.
- The solution leverages Twitter's July acquisition of CardSpring, which developed a platform very similar to Offers. In September, Twitter began testing a "Buy now" button that allows users to make e-commerce purchases without leaving its site/apps.
- Offers represents fresh competition for Groupon's (GRPN +0.7%) local deals services. Facebook already provides an offline deals solution called Offers.
Fri, Nov. 21, 10:42 AM
- Twitter (TWTR +0.5%) CEO Dick Costolo's family trusts sold 283.5K shares (half their holdings) in transactions on Nov. 3 and 17. Following the sales, Costolo directly owns 36K Twitter shares and 283.5K via the trusts, along with 509.8K restricted stock units.
- Costolo previously sold 17K shares in July, and 20.1K in October. On Nov. 3, he disclosed entering into a 10b5-1 trading plan. Other Twitter execs sold share following the company's May lockup expiration.
- The WSJ ran a less-than-glowing column on Nov. 6 regarding Costolo's management style, and the investor pressure he's facing to boost user growth/engagement. A slew of product changes were unveiled the following week at Twitter's analyst day, as were aggressive growth targets.
Thu, Nov. 13, 3:56 PM
- S&P has assigned Twitter (NYSE:TWTR) a BB- debt rating, with a stable outlook. The rating comes two months after Twitter raised $1.8B through a convertible debt offering.
- S&P: "The company is investing very aggressively in growth. Depending on the level of business reinvestment, Twitter may not generate positive discretionary cash flow until 2016." However, the firm also thinks Twitter will "continue to experience very strong growth and not encounter a significant increase in competitive pressure."
- Meanwhile, the sell-side has provided mostly positive reactions to yesterday's big analyst day product announcements and sales growth targets, albeit without issuing any upgrades. "We think management delivered in a watershed moment for the company," proclaims SunTrust (Buy).
- Janney (Buy) is upbeat about Twitter's effort to boost sign-ups and grow video ad sales. "Although investors should still be somewhat skeptical, the details on new products and initiatives are encouraging and lead us to be incrementally optimistic."
- RBC (Sector Perform) notes Twitter boosted its long-term EBITDA margin target range to 40%-45% from the 35%-40% provided at IPO time. It was also "impressed by the quality and detail of [Twitter's] presentations," but adds execution remains a question mark. Cowen (Market Perform): "While the new targets are thoughtful in our view, they also strike us as aspirational."
Wed, Nov. 12, 3:32 PM
- During its analyst day, Twitter (NYSE:TWTR) showed off a slide suggesting the company, which only this year reached $1B/year in revenue, is aiming to be at $5B/year by 2018, $10B/year by 2022, and $14B/year by 2024. The chart references the rapid growth seen by Google, Facebook, Tencent, and others in the years after they crossed the $1B threshold.
- Twitter has also previewed several more features on top of the headline-grabbing ones mentioned by Dick Costolo. Among them: 1) A "While you were away" feature that uses algorithms to surface popular/interesting tweets published since the last time a user logged in. 2) Location-based content curation. 3) Push notifications for breaking news. 4) In-app video capture/uploading. 5) Curated timelines for following live events.
- Shares have crossed $42. Volume is up to 46M, well above a 3-month average of 29M.
Wed, Nov. 12, 12:54 PM
- "We want to deliver an instant timeline for new users - no need to follow accounts when you sign up," embattled CEO Dick Costolo states during Twitter's (NYSE:TWTR) analyst day (webcast), trying to address user growth concerns. He also promises Twitter will "add significant functionality to private messaging" in Q4, as it tries to counter the massive growth seen by various mobile messaging platforms.
- Costolo adds Twitter is open to launching new standalone apps for services such as Vine - Mark Zuckerberg would approve. He declares the company has 500M+ users/content viewers who aren't logged in, putting a number on what he has repeatedly called a major opportunity (though some still have doubts).
- Along the same lines, CFO Anthony Noto says Twitter is focused on further syndicating its content, and that its opportunity goes well beyond users who tweet. He also reiterates Twitter remains interested in creating new data products (previous), in addition to content.
- Shares have jumped in the wake of Costolo and Noto's remarks.
Fri, Nov. 7, 11:30 AM
- Current and former Twitter (TWTR -1.9%) employees describe CEO Dick Costolo as "a reactive thinker who bounces from one idea to the next," the WSJ reports in a column going over rising investor pressure on Costolo amid slowing user growth and near-constant executive shakeups.
- While Costolo is still deemed well-liked by many Twitter employees, his "sudden, often unexplained, decisions" are said to have "confused and frustrated executives higher up in the ranks, sometimes throwing strategy off course or hurting morale."
- Costolo's 2012 promotion of Michael Sippey (a friend) to run Twitter's product team is cited as a move that backfired - the WSJ states "poor communication and indecision plagued the product team" under Sippey, who left Twitter two months after its IPO.
- More recently, Costolo reportedly decided Twitter should describe itself as having three "geometrically eccentric circles" of users - those who are logged in, those who aren't logged in but visit the site, and those who only saw Twitter content on other sites - rather than just its logged-in base. The apparent goal: To counter adverse comparisons to Facebook, which has 5x as many active, logged-in users.
- Shares are near $40, and down 18% from where they traded before the Q3 report.
Mon, Nov. 3, 10:40 AM
- Morgan Stanley's Benjamin Swinburne: "Twitter’s (TWTR -1.7%) global MAU growth has reflected a slower pace of adoption than expected, and we forecast net adds decelerating in ‘15/16E. Focus has shifted to monetizing logged-off visitors, but the opportunity likely reflects a marginally less engaged consumer of Twitter’s content."
- Swinburne, who has set a $42 target, does admit Twitter's monetization of registered users has been growing rapidly. But he also calls expectations the company will narrow its monetization gap with Facebook "optimistic" in light of differences in both time spent and ad sales approaches.
- Twitter is six days removed from seeing a major post-earnings selloff, one that was followed by news two engineering execs are leaving and the company's consumer products chief has been demoted.
- SunTrust's Robert Peck is reiterating a Buy today, but also declares Twitter's Nov. 12 analyst day will be a "watershed moment." Among other things, he's looking for details on Twitter's strategy for boosting MAU growth, stabilizing Timeline views per MAU, and tapping new revenue streams..
Thu, Oct. 30, 4:58 PM
- Daniel Graf, hired away from Google only in April - he was in charge of Google Maps - will no longer run Twitter's (NYSE:TWTR) consumer product team. The WSJ reports he'll now "focus on certain strategic initiatives, starting with geo and location features."
- Kevin Weil, Twitter's 31-year-old head of revenue (i.e. ad) products, will now be in charge of consumer products as well. He'll be Twitter's fifth product lead in five years.
- Yesterday, CNBC reported engineering VP Jeremy Gordon and analytics chief Adam Kinney are leaving, while adding "some in the engineering organization are not clear about where [CEO Dick Costolo] and engineering executive Alex Roetter are leading."
Wed, Oct. 29, 4:56 PM
- CNBC reports Twitter (NYSE:TWTR) engineering VP Jeremy Gordon and analytics chief Adam Kinney are leaving. Gordon has confirmed his departure.
- CNBC adds "some in the engineering organization are not clear about where [CEO Dick Costolo] and engineering executive Alex Roetter are leading." Peter Thiel might smile at that passage.
- Twitter saw COO Ali Aowghani resign in June, a move that reportedly stemmed from Costolo's wish to take over product development amid concerns about slowing user growth. Twitter's Q3 numbers reinforced those concerns.
- Like Facebook after its IPO, Twitter has seen a healthy amount of executive turnover during the last 12 months.
- Earlier: Twitter strikes analytics partnership with IBM
TWTR vs. ETF Alternatives
Twitter Inc is a global platform for public self-expression and conversation in real time. It provides a way for people to stay informed about their interests, discover what is happening in their world and interact directly.
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