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.
- Twitter is here to stay
- It is growing as fast as anything
- The stock has gotten really cheap