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The Biggest Problem With Twitter Inc Stock Is Not What You Think

Will Ashworth

Don’t look now, but Twitter Inc (NYSE:TWTR) is having a stellar 2017, up 27% through Dec. 1. Barring some significant event that severely panics investors, TWTR stock is going to finish in the positive column for the first time since going public in November 2013.

The Biggest Problem With Twitter Inc (TWTR) Stock Is Not What You Think

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That’s exciting news for the TWTR stock price, which has seemingly been under attack since hitting an all-time high of $74.73 on Dec. 26, 2013. It’s pretty much been downhill ever since.

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Can the Rally Continue?

InvestorPlace’s Chris Fraley has four reasons why he thinks TWTR stock has legs heading into 2018. All of them make sense to me, although a couple of them do require a leap of faith.

First, analysts expect TWTR to earn 45 cents on a non-GAAP basis in 2018 on 6.1% sales growth. With one quarter left in fiscal 2017, 40 cents in earnings is looking very real.

But remember, that’s non-GAAP earnings. The company will still lose approximately $300 million on a GAAP basis in 2017. That number has to turn positive for TWTR stock to get back to the $70s.

The second argument for TWTR stock continuing to rally is its streaming partnerships with both the NFL and Bloomberg that diversify its revenue streams beyond advertising.

While I understand you’ve got to make lemonade when given lemons, I’m not sure hitching yourself to NFL Thursday Night Football is a winning proposition in the long term, given the NFL’s popularity (for various reasons, including a stronger NBA) is dwindling.

I would prefer that Twitter figure out its main product before leaping off into uncharted territory. I consider this move a wash; it’s neither good or bad.

President Trump’s a Believer

The fact that the 45th president of the U.S. endorses Twitter has been a mixed blessing for the company. While it sheds light on the social media app, it also highlights the downside of something that allows rhetoric to spread.

Eventually, this kind of negative press can work against you when it comes to attracting advertisers and new partners.

So, while the stock is up a great deal in 2017, I doubt it has anything to do with Trump.

Finally, the company is working on a subscription-based model that will charge news organizations and large brands for a more in-depth Twitter experience.

The subscription idea is Fraley’s fourth reason for the rally continuing and the one I called Twitter’s best chance of success back in May, when I suggested investors who could handle a few quarters of declining revenue should consider taking a small position in TWTR stock.

The Biggest Problem for TWTR Stock

Since I wrote my May article, TWTR stock is up 11.5% compared to 12% for the SPDR S&P 500 ETF Trust (NYSEARCA:SPY).

Why would you invest in TWTR stock with all the risks associated with it when you can own more than 500 of the largest companies in America and get the same performance?

Well, if you’re investing in a 401(k) or IRA, you shouldn’t.

However, with Twitter trading at less than $21 and the possibility of being acquired by a larger company still very much alive, it makes a nice speculative play at this point.

But only those who can afford to lose all of their investment need apply.

As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.

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