Portfolio Stocks

PINE STREET JOURNAL

Poor Richard's Financial Strategies
Home
Contact
About

TWTR Evaluation and Reasoning

Article posted on 5th August, 2015 - updated 29th October, 2015
 
 
TWTR:  3rd Purchase - 28th October, 2015 - bought at 28.189 for total stake of 8.13% of portfolio
 
TWTR:  2nd Purchase - 17th August, 2015 - bought at 29.24 for total stake of 6.3% of portfolio
 
TWTR:  Purchase - 5th August, 2015 - bought at 28.46 for 3.17% of portfolio
 

Reasoning Oct 28th, 2015:

MAU Came in disappointing and the stock dropped ~12%.  Things are far more promising now that CEO issue settledwith choice being founder.  MAU is an issue but the expectation that this was going to turn around quickly were unrealistic and seems to be what the drop implied.  The MAU came in as I would expect. 
 
 
Reasoning Aug 5th, 2015:
 
 
Anyone who has been following Twitter (TWTR) lately has noticed that it is dropping like a rock.  Anyone holding the stock has been suffering  as this once rising Social media star appears to be going the way of Alta Vista, Yahoo, Netscape, MySpace and a myriad of other sure things.   TWTR is hurting, and with good reason:
  • MAU (monthly active user) growth has slowed to a crawl while the same measure at rival Facebook is still quite healthy, even while Facebook's MAU already dwarfs that of Twitter's by about 5 times.
  • Hopes for new and energized leadership after Dick Costolo stepped down have been repeatedly dashed, with even co-founder Jack Dorsey showing no interest in taking the position.
  • Daily reports and comments from the C-Suite have done nothing but discourage analysts and investors who are now wondering if the C stands for Circus.
 
So why would anyone buy-in to TWTR and catch what Wall Street often refers to as a falling knife.
 
Here is my thinking on the matter:
 
In reading what the "Experts" have to say about Twitter's slowing mau growth, most want to compare it to Facebook, LinkedIn and other Social media sites as if mau is a simple yard stick by which you can derive the survival prospects of a company in a winner take all race to the top.  If Twitter's mau is gaining ground on Facebook, they cheer and TWTR goes through the roof.  If a report like last quarter comes out showing TWTR mau all but dropping out of the race, they sell and declare the race lost and demand the head of the now vilified CEO and cheer the stock higher at his removal only to sour again when a new champion doesn't rise from the blood stained ashes like a baby blue phoenix.
 
On the surface Twitter and Facebook appear to be very similar animals, so I understand the confusion and the obsession with comparing MAUs.  I have a personal Twitter account.  I also have a personal Facebook account.  Facebook is like a loud party with many distractions and people competing for attention or trying to share a little camaraderie without having to brush their teeth or pick up the phone.  Twitter on the other hand, as those few active users find, is for people on a mission.   If I want to know what my aunt had for breakfast; who's feeling a little down in the dumps; or who found a great new cat video, I go on facebook and share in the laugh's and add a few clever responses all the while getting a 'like' or two from half strangers to make me feel included.  But if I want to start a revolution, pursue business interests, express outrage, know the current thinking of my public heroes, idols, or thought-leaders, I log on to Twitter.
 
Unlike Facebook there is great benefit in being a silent user with lists of users that you respect and follow regardless of the subject area that you are passionate about.   But at the same time, those with much to say have a more focused and serious audience.  It's like open Mic. night where you only need to hear the voices you choose, including those who are so lofty you normally would have no access unless the mass media were to pick it up by chance.
 
The problem is that prospective users don't get this or understand this until they begin using it ( See article by Chris Sacca ).  So there is no natural draw to make the effort.  But for those who have discovered and use Twitter, I would argue that they are users in a far more focused environment than any other Social media environment (unless maybe you consider linkedIn but even there your essentially limited to one subject; finding or filling a job position).  Once Twitter is able to determine how to effectively mine the data in order to provide focussed content (be it Ads or otherwise), the sky is the limit.  I would rather try to sell a cup of water to one man dying in the desert (Twitter) than a cat scratcher to 5 people sharing a cat video (FaceBook).  As their content placement capabilities mature and start to get recognized and demonstrated, Twitter will become indispensable to most businesses and other interests.
 
 
Like Yahoo, MySpace Etc.  many companies that one minute seem to be ruling the world, a short time later are hardly even a memory.  This could happen to Twitter.    Especially with all of the media hype about the current MAU and C-Suite fiasco.  My hope is that in the midst of this, Twitter leadership does not lose sight of the unique essence of Twitter.  The talking heads seem to be advising them to become more like FaceBook.  However, i think there is more to the Twitter brand than they currently get credit for.  It is rare that a day will pass that numerous high profile tweets are not top NEWS.  This is Huge.  Anyone important has and uses a Twitter account.  But the not so important wall-flowers are also slowly learning that having a Twitter account is not just about being heard, but is also about having a connection to the speakers that you want or need to hear. 
 
The lack of tact in comments and actions from the leadership of Twitter in regards to their interactions with analysts, I believe is due to their newness as a publicly traded company.  Many new IPOs go through such a phase when they are new and are not yet versed in talking to and reacting to Wall Street.  I could be very wrong in this, in which case the share drop will prove to be justified and next year Twitter will be a distant bitter memory.  Some believe that this is an intentional ploy in order to set themselves up as a merger prospect.  I find that idea to be silly however it could result in just that outcome.  This brings me to the reason that I am now becoming very interested in twitter.  I believe that FaceBook, Google and other IT companies would be happy to see Twitter whither on the vine, and from all appearances they are doing just that.  But as the price continues to drop it becomes compelling to companies to consider two things:
  1. Buying twitter as a ticket into the nearly completely inaccessible space dominated by FaceBook and Google.  For example, if Yahoo were to by Twitter at say 15 Billion, they would overnight go from a washed up has been to a formidable contender and a viable threat to FaceBooks Core business.  Does FaceBook know this - of course they do.  Does Yahoo know this - of course they do also.   Have other wanna-be social media giants considered this - I'm sure many have.  The stakes are too high for all of the companies in, or wanting to be in this space, not to have considered this.
  2. Buying a large enough of stake in Twitter to prohibit the previous point.  There has been a lot of talk about FaceBook or Google buying twitter with some arguing they will and others arguing that they have no need to and would be content to let Twitter continue its impressive implosion.  The problem is that if Twitter is bought by a rival (or God forbid, they start to recover from their latest woes), all companies in the Social Media space immediately have one more reason not to sleep at night.  Google or FaceBook would both be wise to buy a large enough Stake (Say 51%) to keep that from happening.  That sounds like a bargain to me.  If they did do this, the concern immediately goes away, and they can choose to let it whither or influence the company at their will.  Either way, the buyer would not need to worry about Twitter anymore.
 
My belief is that points 1 and 2 put a natural floor under TWTR.  Although the stock could easily sink another 25% before that happens.  I think the price will soon be too compelling to ignore.  It's like a dangerous game of chicken.  If no company acts on points 1 and 2, I think that Twitter will continue to slowly add users but that the premium value of those users will at some point be recognized.  The only problem is that management could very easily screw this up.  Let's hope they don't.  Or at least not before another company is forced to act, driving the price back up.
 
As the current pained shareholders slowly let go of their dreams of a stock rising on a straight shot to the moon, with the stock continuing to fall on the same old two week old news, my plan is to build on my position.  That of course is barring any new crazy developments.
 
 
Please Contact me and let me know your thoughts.