MorningWord 4/15/16: $TWTR: LIVE or Let Die

by Dan April 15, 2016 11:53 am • Commentary

On CNBC’s Fast Money this past week we ran a couple of segments on how traders on the desk incorporate Twitter in their daily market work flow. Here was mine from Wednesday’s show:

And here was Brian Kelly’s from last night’s program:

When we decided to do these clips it was not meant to have any bearing on how we view Twitter (TWTR) as a stock, but merely revealing how we use it as a service.  The feedback we got from viewers (on Twitter obviously) was a little surprising to me.

I had assumed that most Fast Money viewers (and therefore interested in markets) were using Twitter in a similar fashion to moi (albeit less time during the day due to their day jobs). But I learned from the feedback (limited sample) that many were not. And many were merely using Twitter for the most simple tasks, like responding with an opinion to those they follow. There were quite a few not using it for what I feel is it’s most powerful market related strength, real time search.

This is a good lesson for the company itself as I suspect a lot of near term focus will be on new verticals in their push to be THE PLACE for LIVE events.

They started this vertical effort in earnest with Twitter Moments last year. But that remains algorithmic and is basically just a fancier version of what they always had in Trending Topics. They recently announced a deal with the NFL to livestream Thursday Night Football. And that offers perhaps their biggest opportunity to really nail a highly visible LIVE vertical.

In my mind, Twitter’s biggest issue is that it for all intents and purposes remains the same product that it was when it launched. And a lot of its advancements since then came not from the company itself, but from users. (users even invented the hashtag). There’s still major issues on the product front. (Can someone explain why @ replies and ‘quoted’ tweets aren’t in the same conversation?) Twitter needs to make the product more understandable to outsiders. It seems insular and intimidating to new users. They need to concentrate on the product itself, making it easier for users to better engage with influencers, news outlets and regular old users. This can all be done without upsetting the old timers.

Increased engagement will lead to more people wanting to be on the platform and you know the rest. With Facebook’s new live video push, the clock is ticking for Twitter. They run the risk of Facebook making ‘LIVE’ easier to understand to the masses, and leaving Twitter as the place for some journalists, comedians and stock market participants to trade inside jokes.

Which brings me back to the personalization aspect hinted on by the Fast Money videos above. I can’t imagine a better interest vertical for Live Moments than financial markets, which are basically open 24 / 5 around the world Monday through Friday. And obviously from a user monetization front, people interested in financial markets tend to be the demographic that advertisers pay the most to get in front of. This is a massive vertical opportunity for the company to reach the masses, mom and pop investors, and not just the types of day traders that currently dominate financial twitter

So what about the stock itself? With TWTR down 33% from its 2014 IPO price of $26, and down 75% from its all time highs soon after, I think it is safe to say investors are less than sanguine that the platform will ever get to a billion world wide active users and given its stagnant growth while other social networks / short messaging services like Facebook, Instagram, WhatsApp and SnapChat grow like weeds, that TWTR actually sees a decline in monthly active users.  I have no clue if this will be the case, but I am fairly well convinced that the company has a truly unique product, that for the time being is a bit misunderstood with amazing potential, oh and the company’s $10 billion enterprise value, in my mind massively undervalues the property on so many levels (relative valuation to both public and private comps and replacement value to name just a couple).

TWTR shares are up a little more than 20% from the all time lows made after its disappointing Q4 results on February 10th, but also down about 20% from its post earnings highs.  The company is scheduled to report Q1 earnings on April 26th after the close, the options market is implying about a 14% move (the one day even move is probably about 12%) in either direction between now and the close on April 29th.  This implies continued uncertainty about the pace of the promised turnaround by founder and relatively new (again) CEO Jack Dorsey.

As for my own positioning, I am have been long and wrong for a while and now have a small position that I pay little attention to.  As we get closer to earnings, options premiums will remain bid or actually increase as focus turns to the stock’s poor relative performance (down 24% in 2016), high short interest (about 11%) and a basing chart that looks like a coiled spring. That could set up for bullish risk reversals, similar to our current positioning detailed here back in February:

TWTR 1yr chart from Bloomberg
TWTR 1yr chart from Bloomberg

We will be sure to update this view as we get closer to the earnings event.