Today is the day to buy TWTR

Why am I pitching Twitter? Because I love you guys. No, but seriously, if Twitter is not a good buy today, I really want to understand why, because to me it’s the quintessential play if you want a growth stock at a good price (which is still my understanding of what this board is about).

The stock has been crushed, there’s blood in the streets, human sacrifice, cats and dogs living together…so is this a value stock or a value trap?

From what I can figure, the big pessimism is based on slowing user growth. Well to parry this blow I feel like we have a pretty good model with FB. FB, as we all know, has for a while now had about as many users as the internet. Tough to grow from there. But revenue is ballooning. The quarter they reported last week was incredible. Then, also, Google came out with a huge beat yesterday, and the ad-based model seems as entrenched and lucrative as ever.

FB and TWTR each grew revenue by double digits YoY in the Jun and Sep quarters of 2015 (15% and 13% for TWTR and 14% and 11% for FB). Then FB punched in with 30% growth in the Dec quarter. TWTR is expected at 25% rev growth…a beat would not be at all surprising. Contrast these numbers with NFLX’s pedestrian 5% or 6% YoY growth ALL 4 of the last 4 quarters.

But does TWTR trade at the generous P/S ratio of 18+ that FB enjoys. No, not even the 7+ of the massive GOOG. TWTR’s P/S is at 6…right around where NFLX’s is.

Of course we know that P/S is meaningless if a company can’t make money. But I submit that TWTR has the long term potential of a GOOG or FB, because it’s ad-based revenue model is similar. Of course I know it’s not there (even profitable) yet. Otherwise it would be trading at $50 a share instead of $17.

TWTR is an 12B market cap right now. I don’t know what else to say. The opportunity there is unspeakable. This company is as a part of the culture today as any of the FANG stocks. Talk show hosts have segments about Twitter. Celebrities communicate with their fans on Twitter. My freaking Dad is on Twitter.

Sorry to be such a fan boy, but when the market cap of something this big gets so low, I get excited. I’ve never been interested in Twitter at 30B or 40B, where it’s traded in the past. But at 12B I’ve taken a position, which has in a week or two grown to my 3rd largest holding, and I’ll keep adding to it as long as the company is undervalued.

In summary:

  1. Twitter is here to stay
  2. It is growing as fast as anything
  3. The stock has gotten really cheap
  • Bear
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I too have a small position, but it is very speculative. I think the platform is here to stay, however they don’t make money, they don’t run the company well, and a lot of potential users seem to not understand it still.

Certainly not a value stock by any means, but could be worth taking a speculative flyer at these prices IMO

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Hi Bear,

Why am I pitching Twitter? Because I love you guys. No, but seriously, if Twitter is not a good buy today, I really want to understand why, because to me it’s the quintessential play if you want a growth stock at a good price (which is still my understanding of what this board is about).

First, thanks for pitching it :wink: Your pitch sounds like it’s mostly about the story, though, rather than the facts.

Here would be my first question: what is going to drive rapid future growth in profits, and are they already very successful at those things? And then, if they’re not, why should we expect them to be successful in the future if they can’t do it today (and, being frank, it doesn’t really count to say that it’s because other companies like FB have done it – FB is a totally different animal)?

I think if there’s a lesson to take away from this board, it’s to invest based on the actual facts from the business today with an eye to the future, but not on the story and what might be if everything happens to fall into place.

So what do the facts look like?

Neil

17 Likes

Doesn’t FB also have Instagram,Whatsap and Oculus in the wings ready to ramp? I believe Instagram and Whatsap both have bigger user bases and growth than TWTR?

Rob

I am not convinced. While TWTR certainly seems undervalued right now, I don’t see that it offers big potential for growth.

The concept of Twitter is inherently limited the very thing that has made it a success: The 160 character tweet. FB, on the other hand, has an extensible platform where new features can be added (and thus new potential sources of revenue).

TWTR also has unusually high levels of debt. Their debt is almost 5x that of FB and they have a tiny fraction the income.

Any comments on these? Either one would have me turning away from the company as an investment.

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Hi Bear,
First, I want to second/third/jump on the bandwagon of appreciating the pitch.

I haven’t really pitched anything since PAYCOM, which I am now out of, and learned a bit from doing that as well.

To underscore what others have already said, you pitched a story and i’d like to see the reasons (or numbers/charts/graphs/tables) that support that this is a growth stock (are rev/sales/earnings growing?) and why it is a good price (PE, 1YPEG, TTM, etc.)

My personnal opinion, and the reason I won’t be buying TWTR any time soon is that there is too much competition in the sector. I don’t think TWTR is a fad, but with snapchat, instagram, vine, whatsapp, FB, GOOG, and every other startup vying for the space, whoever wins will need to connect with the audience and be managed well. I don’t think TWTR is currently in position to do that, especially on the management side. I’ve had a TWTR account for a couple years now and still don’t understand some of the features and don’t feel it is intuitive or could replace other social media apps I use more regularly. I also think there is a trend towards less social media/phone time and using a ‘best of breed’ or just having one app/account vs. a dozen on a device, and that ‘one’ isn’t TWTR to me.

Best of luck,
Robert

invest based on the actual facts from the business today with an eye to the future, but not on the story and what might be if everything happens to fall into place.

Good advice, Neil. My post needed a little editing based on yours and others’ questions so far. But the idea was to base my entire thesis on exactly what you said – the facts as they stand now.

Consider that as I said TWTR is a 12B company today. FB’s market cap is 330B. You could buy 27.5 Twitters for that.

MONYMAN3, I am by no means saying that TWTR will rival FB or GOOG in size. I’m simply looking at the case today and comparing the growth prospects. FB has about 5x as many users as TWTR, depending on how you count it. But it’s valued at 27.5x TWTR (based on P/S…yes I know the caveats, FB is profitable etc etc…we can discuss the specifics if you like, but I’m just trying to keep this simple.)

Neil, I’m not really bullish on rapid user growth for either. FB already has all the users in the world (exaggeration) and TWTR’s growth has slowed and that’s not going to change drastically. But I do think they’re both demonstrating they can find new and creative ways to add business elements and monetize. The proof is in the pudding. I gave their quarterly growth numbers in my previous post. I mistakenly said YoY but that is QoQ. Every quarter they’re growing double digits or more. That’s insane growth. It’s already happening.

othalan, your point about Twitter having a limited platform is the only thing that ever held me back. I don’t know that they’ll EVER be a 300B company…they just don’t seem like they’ll ever have that many irons in the fire. They might…I’ll leave that to David Gardner to divine. All I care about is what they can be based on, as Neil said, what they’re doing today. Again, 12B vs 330B. I just don’t think the gap is that wide.

I can see 2 ways you might disagree with me:

You can argue that I’m right about the market cap gap being too big, but that all that means is we should short FB, not buy TWTR.

or

You can argue that I’m wrong, and FB actually is worth 27.5 Twitters.

But I fail to see what other arguments you can make.

  • Bear

don’t feel it is intuitive or could replace other social media apps I use more regularly.

Why would it need to?

I also think there is a trend towards less social media/phone time and using a ‘best of breed’ or just having one app/account vs. a dozen on a device, and that ‘one’ isn’t TWTR to me.

I don’t think many people would agree with that. I certainly wouldn’t. Humanity freeing itself from the matrix is a nice thought, though. :slight_smile:

No, but seriously, if Twitter is not a good buy today, I really want to understand why

Try 3 reasons…

  1. It is loss making - there is no 1YPEG as there are no profits let alone rising profits at a good price. So definitely not a Saul stock - Saul doesn’t invest in unprofitable companies full stop.

  2. The growth in user base has declined and is now in low single digits year on year

  3. Half the board just quit.

I have been tempted at these levels myself even if I cannot stand the product however investing is about discipline and just reason 1 should eliminate this with other profitable fast growth opportunities about.
Ant

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I guess answering the first question relates to the second. I believe there isn’t enough time to actually use all the social media apps out there, eventually users are going to migrate to the best in breed or most convenient to use (think mySpace to FB). If an app or tool isn’t intuitive, people will stop using it. Sure, user account creation might grow because it’s not a fad, people are talking about it, they want to try something new and shiny, but that will wear off eventually (or you will hit a wall of available users). And marketers/advertisers will stop paying or using the company (any, but in this case TWTR) when they get better ROI from other apps/tools.

Maybe we should start a poll to see how many people have stopped using a social media app after installing it, or have let an account lay dormant after creating it. There is plenty of other research, scientific or not, a simple search on google reveals plenty of hits.

I don’t have to be right, and there might not be a wrong, just an opinion. Or maybe my statement wasn’t understood correctly. I don’t think social media on phones/apps is going away or reducing in size or time (most likely moving with the population swings). I think that how that service is going to be used in the future is going to change to certain groups using specific apps, not every user with a smart phone having a dozen apps that all do similar things.

If I start opening the TWTR app on my phone more than once a month I’ll change my mind.

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I use Twitter quite a bit. Now that I’ve made the investment to find a bunch of interesting things to follow inside Twitter, I find it quite interesting. I follow news outlets, politicians, my DOT, sports figures, comics, etc. I used to browse up to an hour a day but now I think I spend perhaps 15 min per day. I’m unaware of any platform like it.

I’ve been a very small investor (~1%) for a long time, sort of keeping an eye on it. I agree it has great promise. But that’s been the situation for a long time now.

What I find vexing is how easy it would be to make the user interface a lot better than it is today, with minimal investment. I’m not a user interface expert by any means, but there are a dozen easy-to-create features they could build in that would make it twice as easy to use and twice as fun to use. I keep hoping they hire someone who can figure it out. Or that someone would buy it and fix it.

If you happen to work for Twitter and want to know what I think just send me a note. :slight_smile:

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I appreciate you bringing up TWTR as it wasn’t on my radar. I think there will be a time to buy TWTR. I don’t think this is it.

When your comparable that shows it is cheap is NFLX, it isn’t really cheap. P/S is a tough number to bargain shop with (because it doesn’t account for the profitability of the product) and I’d want to see a very compelling number before pulling the trigger.

SWKS is 3.7.
LGIH is .74.

For an example of a stock that had a P/S number around 6, but crashed another 75%, see DDD. My recollection is that it had P/S of 6 when it was around 28 (it was down 60%!), and now trades at $7. That is down almost another 75%. Unfortunately it has a ways to go down.

That said, when I look at the quarter over quarter numbers for twitter, I see even faster growth in revenue than you do.

“Q3 revenue of $569 million, up 58% year-over-year, and above the previously forecast range of $545 million to $560 million. Excluding the impact of year-over-year changes in foreign exchange rates, revenue would have increased 64%”

For the 9 months ending in September 2015, revenue growth of more than 60%. That is impressive!

Still, I think you are going to see a better entry point.

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FWIW I believe it was Ken Fisher who wrote about P/S in e a book emphasizing price sales ratios as a way of valuing companies. He back tested it and found it useful.

. Years later he said P/S no longer worked, the market had priced it in.

Agreed, Twitter, NFLX, FB…these companies are tough to value. I only compare Twitter with FB because they have similar growth and similar business models (ie they make most of their money selling ads).

I through NFLX in there mostly as comparison. They aren’t growing revenue anywhere near as fast as TWTR or FB, but their P/S is the same as TWTR’s. Probably isn’t the best comparison, because I still think NFLX is super expensive anyway.

SWKS’s growth is more like NFLX’s. Nothing compared to TWTR or FB.

LGIH looks like the best buy by these metrics. Astronomical TWTR/FB -like growth, and cheaper by virtually any metric. And profitable.

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