by winston » Fri Mar 23, 2018 9:30 pm
not vested
Twitter Inc (TWTR)
The Future of Twitter Stock Hinges on Revenue Growth, Not Hype
The kings of digital advertising, Facebook Inc (NASDAQ:FB) and Alphabet Inc (NASDAQ:GOOG), have struggled recently.
But much hated little brother Twitter Inc (NYSE:TWTR) has actually thrived over the past several months. So far in 2018, TWTR stock is up 33%. GOOG stock is narrowly positive, while FB stock is actually lower on the year.
The big 2018 move in TWTR stock has been driven by a turnaround in the company’s digital advertising business.
For several quarters, growth in Twitter’s digital advertising business slipped into negative territory. Growth jumped back into positive territory last quarter, and that has investors excited.
But digital advertising growth was just 1% last quarter. Over at Google, digital ad revenue jumped 22% higher last quarter. Over at Facebook, digital ad revenue soared 48% higher last quarter.
Meanwhile, TWTR’s monthly active user base grew by 4% last quarter. FB’s monthly active user base grew by 14%. And FB’s user base is more than 6-times as big as TWTR’s user base.
In other words, TWTR is still the ugly duckling in the digital advertising world. A return to anemic positive growth doesn’t really mean much. Digital advertising is a secular growth industry which grew by 16% last year. Twitter should have positive revenue growth in that 16% growth industry. Indeed, 1% growth from Twitter is quite unimpressive.
But TWTR stock now trades at nearly 60-times forward earnings, giving it a significantly richer valuation than both FB and GOOG. That doesn’t make much sense.
Over the next several years, TWTR will continue to be a low-growth player in the digital ad industry because it lacks scale (only 330 million monthly user) and isn’t gaining any scale (monthly user base was flat quarter-over-quarter).
As such, TWTR stock seems maxed out. At best, this stock grinds sideways over the next several years.
Source: Investor Place
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