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Why Twitter Is a Deadbeat Investment

- By Naman Shukla

Twitter (TWTR) is a great platform that has massive potential. However, the flubs of current CEO Jack Dorsey have prevented Twitter from fulfilling its potential. After having failed to negotiate a takeover, Twitter's shares have continued moving lower with a weak earnings report that failed to meet the consensus.

Twitter reported its fourt-quarter results last month, with revenues of $717 million, $23 million below analysts' estimates. In addition to the miss, Twitter recorded meager year-over-year sales growth of 1%, down considerably from 48.2% growth in the fourth quarter of 2015.

On the other hand, the company detailed that its monthly active user (MAU) base increased to 319 million, representing a surge of 2 million new users compared to the third quarter. Furthermore, it reported that its daily active users (DAUs) also continue growing at a strong rate, but it didn't disclose the actual figure.

Despite the increase in user activity, Twitter failed to monetize it and as a result, the stock has plunged over 20% post-earnings report. Although the company did beat the analysts' estimates on EPS by a good margin, this was overshadowed by weak guidance and timid revenue growth.

Again, I think Twitter as a platform has massive potential, but the consistent failures just highlight problems with the company's management.

Twitter guided for $75 million to $95 million in EBITDA for the next quarter, which further points towards decreasing profitability. Its user growth is already slow, and revenue was also almost flat. I you throw decreasing profitability into the mix, it paints a really bad picture of Twitter's future.

The company may still be an acquisition target but given the last failure to close a deal, I wouldn't advise anyone to bet on it.

Disclosure: I don't hold a position in the stock mentioned in this article.

This article first appeared on GuruFocus.