There are still many people that are holding out, waiting for a miracle, and they’re not going to like what I, or others, will have to say. The truth, as so often happens, hurts. Nevertheless, it has to be told — Twitter, Inc. (NYSE:TWTR) is a disaster. Even if it were to be bought out by a benefactor, that sentiment won’t — can’t — change.
Here’s why: the buyout speculation that has seen TWTR stock soar sporadically is nothing more than sophisticated smoke and mirrors. Essentially, the argument is that Twitter can’t survive on its own, that it does not have a sustainable business plan. Therefore, it needs either an influx of cash that it can waste over a longer period of time, or someone with a lot of money to burn could make some utility out of it.
As an investment idea, it doesn’t make a whole lot of sense. At the very least, it’s not an idea worthy of a prime, New York Stock Exchange listing. TWTR is extremely levered to social media, a platform that is as fickle as a teenager’s taste in music. Yes, Twitter itself may be considered among the kings of social media, but that lofty position is liable to be dethroned. Worse yet, declining subscriber growth indicates that it’s not doing a good job.
Business, after all, is about making money. Being the leader of “social media” doesn’t mean jack unless you have the smack. Moral victories and accolades don’t put food on the table. That’s the fundamental problem right there. Investors loved the potential of TWTR based on its explosive revenue growth. But that growth hasn’t translated to net profitability. Without it, TWTR becomes a losing proposition; hence, the need for a benefactor.
But if that’s the only legitimate hope of the company becoming profitable, what separates Twitter from a no-name penny stock? Aren’t they both operating under the same premise? Penny stock investors routinely ignore the often terrible fundamentals of their idea of choice in the hopes of a grand slam. That increasingly sounds like the analysis of Twitter stock, but dressed in fancier language.
I think it’s safe to say that Twitter is a glorified penny stock. There is an upside opportunity in the intermediate time frame, but that will likely only come from another buyout rumor. Once the last of the rumors are put to rest, I don’t think there’s any way but down.
At that point, TWTR really would become a penny stock. By then, there may not be too many people willing to take a chance.