Twitter is Officially the Failed Tech Stock

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Twitter Inc. is in all sorts of trouble. The stock is currently trading at $15.95 in the premarket session, down 2.80%, after closing at $16.41 on February 9, 2016. The story of Twitter is a woeful one. Over the past 1 year the stock plunged from $24.87 per share on 5 October 2016 to its current price of under $16 per share. That’s over a 33% depreciation in the stock price in just four months. However, there are some important takeaways from the stock’s performance. Twitter generated revenues of $717 million in Q4 2016, as opposed to analyst expectations of $740 million.

The company has been generating less on advertising while the user base has been increasing, and this contributed to poorer than expected revenues. When it comes to EPS, Twitter outperformed expectations by reporting $0.16 on Thursday, 9 February, when analysts were forecasting $0.12. Another big plus for Twitter is the growth in the MAUs (monthly active users) from 317 million in Q3 2016 to 319 million in Q4 2016. The number of DAUs (daily active users) increased 11% year on year. This was markedly higher than the 7% year on year growth in Q3 2016. Towards the end of the week however, Twitter stock was approaching 11% declines, and falling fast.

How does Jack Dorsey, CEO of Twitter feel about the company’s performance?

The official word from CEO Jack Dorsey is that 2016 was a transformative year. He was happy about Q4 daily active user numbers, and he’s confident that growth will continue in 2017. Naturally, he is concerned about revenue growth which is a lot slower than the growth in the number of DAUs, or MAUs. Clearly, Twitter’s advertising revenue is down, as reflected by the $638 million in Q4 2016. This figure represents a contraction of 1% year on year. The sharpest declines for Twitter are in the marquee advertisement format, but strong growth in video ads was continuing.

During the quarter, add revenues in the US dropped 7% year on year and posted a total of $382 million. Other revenue at Twitter, including data licensing increased by 14% in Q4 2016 and posted revenues of $79 million. For the current year, Twitter will be focused on 4 key areas: safety, core users and live streaming, profitability, and differentiation between revenue products. Whether Twitter has the wherewithal to make good on these ambitious undertakings remains to be seen. However, the most important number for binary options traders is the loss that the company posted in the quarter – $167 million. For the full year, Twitter was down $457 million.

What figures should we be looking at to make buy or sell decisions on Twitter stock?

For starters, Q1 guidance is now in the region of $75 million – $95 million. The EBITDA margin is in the region of 17% – 17.5%. Twitter will always be #1 when it comes to President Donald J. Trump, and it remains the most effective mass communication medium. At the close of trade on Thursday, 9 February 2017, all indices on Wall Street closed higher. Unfortunately, Twitter was down 12% after a revenue miss, and a user count that barely bested forecasts. The disappointing sales growth in Twitter is attributed to its declining advertising revenues in the US. This tech company is also facing stiff competition from rapidly growing Internet services, and it is now a laggard in this regard.

From a qualitative perspective, Twitter is globally accepted. More users are signing up for the service, and it has tremendous visibility, but its revenue generation models are concerning. The US presidential election certainly put Twitter front and centre as a staple of social media engagement. However, despite broader awareness of the platform, there are internal challenges crippling the company. The resignation of key insiders in recent months has not done much to assuage concerns about Twitter’s performance. One thing is for certain, Twitter is in the news cycle, even if Trump’s messaging is asinine and personal, not newsworthy. Twitter’s main competitors include Facebook and Instagram, with the former approaching 2 billion monthly active users.

As a binary options trader, you will certainly not want to go long on the stock. The failed acquisition deals from Salesforce, Google and Disney will be highlighted in your mind. Dorsey has yet to prove that he has the wherewithal to transform the company into a profitable entity for shareholders. For now, put options are safe options – despite protestations to the contrary.