Compared to a wide range of high-flying technology stocks, Twitter Inc (NYSE:TWTR) just hasn’t cut the cake for investors. Perhaps it’s the lack of sustained elevated growth that has come with the above-average initial public offering sticker price. Perhaps it’s the fact that TWTR stock appears to be losing the race to become an integrated media company to its peers at an increasingly faster rate.
Source: Techcrunch via Flickr
Or, perhaps, it is because TWTR is simply under-utilized and it is not unlocking enough of its potential value for shareholders.
Among the social media platforms most consumers use, TWTR remains an important source of curated news and information. With over 500 million tweets sent out each day, the social media company has done a good job of growing its user base and 140-character content offerings for anyone with access to the internet.
Where TWTR Stands Today
With approximately 330 million monthly active users on the platform and daily active users increasing in the double-digit range year-over-year, it appears Twitter management is doing a good job of creating a robust and growing number of eyeballs, a trend which is unlikely to halt any time soon (especially with the more recent “Trump bump” carrying the platform forward).
While its user base is impressive, TWTR stock investors have generally been displeased with the speed at which the social media platform has monetized its user base. Having a massive number of monthly active users means nothing if the operation continues to bleed red; the company’s sustained lack of profitability has only served to push potential investors away from Twitter stock and toward other social media giants such as Facebook Inc (NASDAQ:FB) and Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL), which do nothing but churn out cash for shareholders.
Shareholders and analysts agree that the existence of such a material user base holds value in and of itself, as the potential for monetization and long-term growth remain the primary focus for investors taking a bullish position on the platform. How TWTR eventually goes about turning this potential into cash is the main concern top of mind for most investors today.
In my opinion, the user base of TWTR is currently significantly undervalued by the market for a few key reasons.
In an argument made by analyst Andrew Left of Citron Research on BlackBerry Ltd (NASDAQ:BBRY), it was noted that BBRY’s 60 million vehicle install base for its QNX software was reason enough to place a (perhaps excessive) price target of $20 on the embattled software company.
Mr. Left related this hefty price target to previous short positions turned sour in growth companies with robust consumer bases in which he failed to properly value the company’s underlying user/install base, effectively writing off the long-term profit potential stemming from this consumer base. Given the robust long-term prospects of TWTR as compared to BBRY, investors betting on a turnaround play seemingly have a few tech options to consider at current levels.
Bottom Line on TWTR Stock
My take is that Twitter stock has missed some pretty lucrative opportunities for some time, and should the company begin to indicate to the market that it is serious about changing its strategic direction, the market may just reprice TWTR stock toward a price closer to its intrinsic value.
From a fundamentally strategic standpoint, two key opportunities, which I believe have not been taken advantage of by Twitter management fully are: (1) a strategic focus on growing the platform’s international user base and revenue; and (2) a more focused approach to specific industries that are sensitive to up-to-the-minute news.
Integrating both concepts well are easier said than done; however, a cursory look at these two opportunities underscores some of the potential TWTR stock has to outperform over the medium to long-term.
International revenue growth has been one of the bright spots for Twitter stock, trending it in a positive direction compared to domestic revenue generation. As other comparably large every-day social media platforms have found, at some point market saturation and outsized global demand will dictate the need to diversify revenue globally, something I contend TWTR should be focusing more of its resources on today to get the global gravy train rolling.
In terms of providing up-to-the-minute news, Twitter remains one of the best platforms out there for information consumers. Perhaps I am not a normal user in the sense that I don’t follow Charlie Sheen or #realdonaldtrump; however, the platform remains my one-stop-shop for news on equities, the economy, real estate and other news categories that are important to me and impact my trading decisions on a daily basis.
TWTR has an opportunity to be a global leader in providing those who rely on immediate information with access to what they need to know when they need to know it. Some information gluttons would pay a lot of money for such a service. Just saying.
As of this writing, Chris MacDonald did not hold a position in any of the aforementioned securities.
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