I had a sort of love/hate/hate relationship with Twitter (TWTR) stock in 2015. I had one of my best trades of the year long in the first half, and then my worst trade of the year in the second half, also long it. My second half trading the stock seemed to be dominated by risk managing a losing position, and eventually I gave up exiting most of my long on Nov 10th at $27 (here) and switching into what we options peeps call a call spread risk reversal to better define my risk. Well as many of you know the stock kept careening lower and this morning made a new all time low at $17.27. And then something happened, like a sign from the heavens, one of my favorite entertainers of the last 10 years tweeted this at 11:13 am:
If Twitter’s stock price goes any lower, I’m concerned that none of us are ever going to get paid for this. #LSSC
— Stephen Colbert (@StephenAtHome) January 14, 2016
That was it people, that was the bottom (not likely but I’m just having a little fun).
This might be the mother of all spike bottom reversal lows:
With an enterprise value of about $11 billion, it is my view, like it was last year with enterprise value of $20 billion, way too unique and scarce of a social media property to be trading at these levels. I am not going to go into my fundamental views about m&a potential or what needs to be done to increase engagement, grow their stalled user base and convince advertisers to place ads, (here was my last post on the stock from Dec 29th & immediately below) and you can read some of the other posts here here here here here here (you get the point, I liked TWTR).
So What’s the Trade? So in addition to the call spread risk reversal in March that has me put the stock at $20 (yes I am underwater at the moment) I am buying shares at $18.80 and will dollar cost average from these levels.
*Action: Bought TWTR at $18.80
There is on caveat, then the company reports Q4 results and offers some guidance for 2016, it may be a shit-show as the company may as well set the bar very low so they can beat already low expectations. I will save some powder for a mid teens puke 🙁So that’s the new trade. And if you want to read more, here was my post from 12/29: [hr]
MorningWord 12/29/15: $TWTR: Flipping the Bird Sorry to do it to you, but one last post on Twitter in 2015. A few days ago, early TWTR shareholder, and quasi-activist tweeted this:
Regarding this tweet:
In a year in the U.S. public stock market where Alphabet (GOOGL) gained more than $200 billion in market cap, Amazon (AMZN) gained $150 billion, Facebook (FB) gained $100 billion, Netflix (NFLX) gained $30 billion, heck even eBay (EBAY) gained more than $5 billion its quite shocking how little value is being placed on TWTR’s growth prospects. I don’t make the comparisons above to suggest that TWTR has similar business models and growth attributes, but even in the private markets, SnapChat has a greater value, and Instagram and WhatsApp within Facebook are both valued at least double that of TWTR’s $13.5 billion enterprise value. Somehow TWTR has been lumped into with loser internet service companies like Pandora, Yelp and Zillow. And back to the LinkedIn (LNKD) / TWTR comparison. LNKD is flat on the year, but down 17% from its 52 week and all time highs made in March.
While the stock has outperformed TWTR by a long shot, which is down 37% on the year, very near all time lows, I would say that LNKD sentiment is also less than rosy relative to other high growth, high valuation internet stocks like the ones listed above who are driving most of the Nasdaq’s 6.5% year to date gains. Something has to give between these two stocks. I know it’s never apples to apples when comparing growth and valuation metrics, and comparative valuation on expected sales growth is often a fools errand. But as I have mentioned before in this space, a decent pair for 2016 could be long TWTR and short Facebook dollar for dollar. And an even better pairs trade could be TWTR and LNKD.
The last point I would make is that while Sacca was very vocal about TWTR and the company’s opportunity, and how to get there in 2015, he has yet to see his bullish thesis play out. Just because the guy was rewarded as a successful early private investor in TWTR, Instagram and Uber, doesn’t mean that the public markets will be as generous. His blog post from June, What Twitter Can Be offers many of the answers for the company’s turnaround. But it may not offer the key for the turnaround in the stock anytime soon. As the stock has threatened new lows, Sacca has been quiet, and I suspect when you are a multiple hundred millionaire or billionaire, time is not a luxury, it is a staple. He will be right eventually, but for you and me, we have to manage risk, which is why I have on many occasions in 2015 tweaked my bullish thesis when it was working in the first half of the year, and when it went horribly wrong in the back half.