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Twitter's Bottom: It Can't Be The Limbo Champion Forever

|Includes: Twitter, Inc. (TWTR)
Summary

Twitter is down 18% year-to-date and recently broke through multiple support levels. It's a game of limbo: how low can it go?

Even after its recent plunge below $30, Twitter is still worth $20 billion. There will never be a time at which Twitter is worth $0.

It's only a matter of time until a new managerial board steps up and takes a page from Chris Sacca's playbook.

If there's ever a thriving company with a beaten up stock, jump on that opportunity. If there's a beaten up company with a beaten up stock, ask yourself how long this game of limbo can last: how low can it go?

Twitter (NYSE:TWTR) falls into the latter category. The stock is down 18% year-to-date and recently broke through multiple support levels. Twitter has definitely seen better days, however, I think that the stock won't be the reigning limbo champion for much longer.

On the surface of its Q2 earnings, Twitter delivered better than expected top and bottom line numbers. The stock popped on the news.

Then, as soon as the board members opened their mouths - the mouths that seem to always dispel all positive sentiment - the stock turned negative.

Even at the current share price, Twitter is worth $20 billion. The blue bird may be flightless and severely injured, but it will never die. There is still value to this company.

Again, Twitter is a beaten up company with a beaten up stock. Eventually, there will be a management team capable of monetizing the mass exposure and free advertising to which the company has fallen victim.

I say "fallen victim" because the exposure and free advertising are factors which have driven up expectations for the company. Again and again, Wall Street is surprised at the atrocity that is Twitter's current management. It is very possible that Wall Street set the bar too high for this bird to fly, and thus made it easy for it to walk under the bar and secure yet another title as the limbo champion.

Though Twitter is discombobulated, I believe the reality is that there will be a time in which there is only one direction for this company to go: up. For this to happen, MAU estimates have to come down, Twitter has to supplant their goal of ad revenue growth with the goal of exceeding Wall Street's MAU expectations and elect a board that strives to do so. Given Twitter's price action following the July 28 bell (and the following trading sessions), it is clear that MAUs mean more than earnings.

So, how does Twitter please Wall Street? By pleasing Main Street, first. My favorite ideas come from Chris Sacca, who published an 8,500 word paper on "What Twitter Can Be;" what can be done better at Twitter HQ. He summarizes by including three initiatives.

  • 1. Make Tweets effortless to enjoy,
  • 2. Make it easier for all to participate, and
  • 3. Make each of us on Twitter feel heard and valuable.

Sacca said: "The world's very best content is already inside of Twitter." It is true the content is already inside of Twitter, and it is growing everyday. Now, the social network has to make sure this content is seen. In Sacca's novel-long list of suggestions, I flagged two as my favorites; ones that I can relate to: features I would really love to see in an update.

The first is quite brilliant. Sacca proposes a feature in which a user would be notified when a public figure notices their follow. This tackles initiative number three.

Imagine following your favorite public figure. Seeing as we're on Seeking Alpha, why not Jim Cramer? Everybody dreams of meeting someone who has inspired them, or maybe a childhood hero, and I see this feature as being the next best thing.

At my school, there are countless girls who fantasize over meeting Taylor Swift. Occasionally, she or another celebrity will go on a following-spree and follow a handful of fans. I have been in the friend-circle of someone who has been the recipient of a celebrity follow, and it makes the person's day.

Without getting too heartfelt, recognition is something for which a lot of people strive. While it may not make a difference to you if, say, Jim Cramer acknowledges that you followed him, I believe that to a significant amount of Twitter users, this feature will make them feel heard, valuable and, most importantly, more inclined to stay on the site.

My second favorite Sacca-proposed idea is extremely simple. He proposes a daily question, survey, etc. This feature would target his second initiative and make Twitter a more social platform.

I think a natural extension of this would be for users to be able to see local survey results and users' answers to questions. This would make it extremely easy for users to interact with others who share similar beliefs or hobbies and, moreover, make it easy to create a more targeted feed.

All this being said, I still don't think Twitter is investable at this moment. I think the stock may have a few days, perhaps even weeks, until it relinquishes its limbo champion status.

TWTR is still not oversold, even after its break below $30. This price served as a strong floor of psychological support. The stock subsequently took out $29.50, which was its previous all-time low. As I write this, the RSI is at about 27.5% - certainly approaching oversold territory - however, I wouldn't go near this name until the RSI is at or below 20%, or until TWTR reaches its IPO price of $26. I'm stepping up and saying that the stock should bounce off the $26 level.

I think that the long-term horizon for this company is bright, yet extremely contingent on there being changes in the works. Twitter will never be worth $0, so it's only a matter of time until the right people step in and take the company where it needs to go. I think that if you want to get long, you can do so against $26.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.