Note on Twitter

twitterOnce again, analysts are rushing to change their opinion and rating on Twitter, following its latest quarterly results. Most are slashing targets by 20% or more, with the consensus now being around $44. The stock is under attack and is currently trading below $40. This is good news for investors that have been patiently waiting on the sidelines.

Twitter’s results missed expectations but were they really that bad? While seeing a spike in monthly active users from 288 million to 302 million in the first quarter, Twitter reported sales of $436 million, missing analyst estimates of $457 million. Profit was 7 cents a share, while analysts estimated 5 cents. The company has also added new tools for advertisers, including promoted tweets and targeted advertising. While Twitter gets nearly all of its revenue from ad sales, apparently the company is having trouble getting advertisers who want their app downloaded, or click on their website, to sign up.
We agree that Twitter’s performance hasn’t been stellar to date. We maintain though that the medium has legs and, in time, it will manage to convert active users to cash. It will never be Facebook but it has a loyal and growing following that includes the right type of user. And this is key for future success.
Clearly the stock got ahead of itself. We believe that recent estimates are much more inline with reality than in the recent past. When the stock trades in the mid to low thirties, we believe it’s a worthwhile investment for the longer-term investor because we believe that at that entry point, an investor can expect a 20-30% upside within a year.
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