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Can Twitter Keep Going After Last Week's 7% Pop?

Image source: Twitter.

There's nothing like merger speculation to get shares of Twitter (NYSE: TWTR) rolling these days, and that's just what happened last week, after co-founder Evan Williams made some comments that triggered more whispers that the social-media giant is in play. Twitter also made a move that will make its video platform more lucrative for content creators, but there's little doubt that buyout buzz is what's pushing the stock higher these days.

Last week's 7% pop was triggered after Williams -- who not only co-founded Twitter but also currently sits on its board of directors -- made an interesting observation on Bloomberg TV. He initially deflected a question about Twitter's independence but then teased at the notion that the former dot-com darling would at least weigh a possible sale.

"We're in a strong position now, and as a board member we have to consider the right options," he told Bloomberg. 

That was enough to get the speculative fervor percolating again, and fuel was added to that fire the next day, when CNBC's David Faber pointed out how the board was meeting the following week. He suggested that it may discuss its independence. Twitter stock closed at $19.55, its highest weekly close since early January. 

Tweet dreams

There were other positive developments at Twitter. It broadened access to its Amplify video-clip monetization platform to individual users. That move should encourage enterprising content creators to lean more on Twitter and its Periscope live-streaming offering as ways to make money. 

Twitter also announced that it's teaming up with China's Yucai, a popular provider of financial news in the world's most population nation. The collaboration will find Yucai providing real-time market updates on Twitter. 

These are positive developments, but they're no match for buyout buzz in driving Twitter's stock higher. Given the rough go that public investors have had since its initial post-IPO pop in 2013, it's hard to blame their excitement over such a speculative event.  

Twitter was a celebrated debutante when it went public at $26 three years ago, nearly tripling after that when it peaked shortly after the IPO. It's been a rough way down ever since. Twitter stock plummeted 41% in 2014 and another 35% last year. It was trading as much as 41% lower in 2016, until activists began clamoring for a sale of the battered company. The speculation has helped push the stock sharply higher since bottoming out in May. It's now trading just 16% lower year to date. 

The struggle is real. User growth has slowed to a crawl, up just 3% over the past year. Advertising revenue is up 18% as Twitter gets better about cashing in on its traffic, but you need to be growing faster than that to justify a lofty market premium these days. The buyout-powered rallies may delight Twitter investors in the short run, but the fundamentals are going to have to earn those upticks for the gains to stick.

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Rick Munarriz has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.