MorningWord 10/29/15: $TWTR – Bird Testimony

by Dan October 29, 2015 9:46 am • Commentary

Bear with me, this is a bit of a think piece.

I consider myself somewhat of an technology early adopter.  Until the last decade that generally meant hardware and desktop software, but with the proliferation of broadband internet access and high speed mobile data in the last decade came eCommerce, social media and streaming content.  While I am an avid on-the-line shopper and content consumer like most in this day and age, I have for the most part rejected most social media platforms as I have found them to be distracting and not particularly useful, save one, Twitter. My primary use for Twitter is an aggregation tool for news that I consume for both personal and professional use.  The latter purpose has proven to be a massive time saver, as I am able to curate the sources that fall into my feed and stay with in one app all at my finger tips often out and about.

The company has had its fits and starts since going public a little less than 2 years ago. Investors and users alike have generally been like this ¯\_(ツ)_/¯ as it seems that most think the product is such a no brainer, how can management not get just a few things right to grow their user base and user engagement.

Back in the spring when the stock had just crashed from the low $50s to the mid $30s the company garnered a ton of buzz around the launch of the recently acquired live streaming app Periscope, leading peeps such as my CNBC friend Josh Brown to declare on his Reformed Broker blog that The Revolution Will Be PeriscopedWe all Periscoped for a bit (I am not sure it is still a verb) and then got bored as it became clear that without a separate clip on camera (maybe one like this) the app renders your mobile device useless aside from you live streaming.  I am sure there will be some uses for Periscope that cause increased user engagement and advertiser interest, but they are no longer evident after the novelty wore off.

I would add that the acquisition and the launch of the product, while no longer a hit, was exactly the sort of the thing Twitter management should be doing, taking chances, integrating new and innovative ways to use their existing product, and basically put themselves out there.

Which brings me to last night. I wanted to watch CNBC’s GOP debate, and Game 2 of the World Series.  As most of us do when we sit on the couch and turn on the TV I had my iPhone, I went to Twitter Moments, I followed the debate and the World Series and all the sudden top tweets started showing up in my Twitter Feed, Genius!


Yesterday TWTR stock traded in a wild range after the prior evening offering Q4 revenue guidance well below consensus estimates. The stock opened down 10% but only closed down 1.5%.  Frankly, I was shocked after all of the news in the last month about management changes, restructuring and product launches that anyone expected the new CEO, COO & Chairman to offer anything less than very conservative forward guidance.

I have been long of Twitter (TWTR) in some way shape or form for more than a year, I have had gains and now I have losses.  It has been my view that Twitter is an amazingly unique and scarce social media platform, who’s product will look very different in a few years than it does now.  A year and half ago Facebook (FB) paid $22 billion for a mobile texting App that at the time had no revenues, but has gained more users since the takeout than Twitter’s existing monthly active user base of 320 million.  The FB peeps are smart, and it sounds like they see way beyond trying to monetize their now 900 million WhatsApp user base for merely texting. Maybe it’s some sort of mobile payments platform integrated in WhatsApp (think Venmo) or some sort of SnapChat like functionality, but I suspect they will figure it out.

Which brings me back to Twitter. While a platform like WhatsApp has grown much faster, it has a much more fickle offering in my opinion.  Apple could put a massive dent in WhatsApp’s usage if they were to put their iMessage mobile texting App in the Android store. I would argue that Twitter’s product is much less fickle, and in some ways addicting, but in a useful way for many like me. So last night, with my iPhone in my hand, and the Twitter App in constant use, I was able to thoroughly watch two huge live events going on at the same time and not just hear the views of the TV channel that was hosting each but from commentators from other networks, politicians and players from other parties/ teams, journalists, comedians, actors, and of course friends and family from all over the planet. I felt as if I were involved in the goings on with a much grander perspective than if I were in the audience of each event.  This will be one of the main reasons users start to accelerate, and the upcoming presidential election will likely be the event to cause the rest of America to take note that whatever revolution is coming, it will happen in some big way on Twitter.

So to sum up, Periscope was a great first shot. Moments is a great second shot. Keep them coming, figure out how to integrate them while expanding the user experience. No matter what MAUs look like this quarter or the next, they will be building a product that someday soon will have much broader appeal than those of us early adopters who are rabid Twitter users in finance, sports, media and politics.

TWTR has a $19 billion enterprise value, is profitable, and is expected to grow sales from this year’s expected $2.2 billion to $3.2 billion next year.  The stock trades 6.5x next year’s expected sales, 22.6x EV/Ebitda vs FB at 12.6x expected 2016 sales, and 19.5x EV/ebitda.  Oh, and while investor sentiment towards TWTR is downright horrid, its fairly euphoric for FB.  With lowered expectations for next quarter management has bought themselves some breathing room. If they can now set up a string of financial metric beats, coupled with some success on the product front that grows user base and engagement, then the stock is gonna be set for a re-test of $40 in the not so distant future.