As it fights Elon Musk in court over his $44 billion buyout proposal, Twitter Inc. reported today an unexpected decline in revenue amid stiff competition from other social media platforms in a dwindling advertising market. Revenue for the company’s second quarter was $1.18 billion, down from $1.19 billion in the same period last year. Data shows that analysts have $1.32 billion on the list of their expectations. The results follow disappointing results from Snap Inc., the parent company of Snapchat, which declined to provide a projection and cited “extremely tough” circumstances due to advertisers’ reduced spending.
The secret is to make money. Can Twitter survive on advertising alone? Yes, they are capable of making money. Facebook is a very successful business based just on advertising, but Facebook is and always will be much better at it than Twitter. Twitter’s revenue streams are limited. Some have made absurd suggestions, such as charging per tweet, etc. The next step for Twitter appears to be a subscription service that would enable extra analytics and perhaps other high-end features (Twitter appears to be hiring developers to implement that service now). An alternative would be to make a version of Twitter without advertisements.
Twitter Stock: Deep Dive
Everything revolves around commercialization. Twitter is grossly underpaid. The market capitalization of Twitter ($28B vs. $1.5B net income in 2019) is really realistic. Understandably, the market has factored in major doubts about Twitter’s ability to monetize and future growth. the risk/reward ratio is a Huge upside and a small negative at the same time. An effective combination is a PE ratio of 20 and significant growth. Twitter has a low cost and is expanding.
Just before the Twitter stocks dropped, chief executive officer and co-founder Jack Dorsey announced his resignation. As CEO, Parag Agrawal was the successor to Dorsey. Since 2017, Agrawal has held the position of a chief technical officer at Twitter. The social network’s board of directors welcomed him.
Until the completion of his tenure in 2022, Dorsey will continue to serve as a board director. However, he is no longer in charge of Twitter’s day-to-day operations. When they are operating effectively and the market is strong, great online companies typically fetch exorbitant prices. Why? Because some investors (i.e., purchasers) are willing to assume a considerable risk (i.e., a high valuation) to pursue the scenario with the greatest potential gain.
Given this situation, it is highly challenging for knowledgeable analysts to forecast stock prices because valuation is determined by a long-term breakaway, and unlimited upside rather than by short- or medium-term fundamentals. Additionally, analysts typically struggle to gauge investor hunger for gain as well as that potential upside.
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