Chart of the Day – Twitter (TWTR) Birdwatching

by Dan February 1, 2017 2:35 pm • Chart of the Day

Shares of Twitter (TWTR) are actually up on the year, basically inline with the Nasdaq’s 5% gains. That has not been a common occurrence since the stock IPO’d in late 2014.

Aside from the goofiness in September regarding a supposed sale process for the company, the stock has spent the better part of the last year trading between $14 and $20, with the current price basically at the mid point of that range. The stock has held support at $16 on a few occasions since the Summer, but the palpitations since August have the sort of look of the dreaded head and shoulders top formation:

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

The next identifiable catalyst for the stock will be its Q4 results due Feb 9th before the close. The options market is implying about a 10% move between now and then, which is below the average one day post earnings move of about 12% over the 13 quarters the company has reported since IPO (the stock has risen only 3x following results).

Sentiment in the stock and the product could not be worse. Wall Street analyst ratings are downright dreadful with only 5 Buys, 28 Holds and 8 Sells with an average 12 month price target of $16.50, below where the stock is trading.  As for the product, the lack of user growth has been the Achilles heal for the stock, while the hype around Snapchat, its user growth, lack of abuse claims, foray into wearables and its impending IPO have put Twitter in the rearview mirror amongst the cool kids.

TWTR has an enterprise value of $10 billion, trades at 5x sales, 4x ev/sales. Snapchat is expected to go public as soon as March at a valuation of $25 billion that would be 25x their expected (guessed) 2017 sales of maybe $1 billion. I am hard pressed to see this deal come and investors, or possible strategic acquires not see the comparative value for a company like Twitter, with $2.5 billion in sales and 300 million monthly active users, but I have been saying that for a while.

We’ll check back in before the report with some defined risk stock alternatives.