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Looking Closer At Twitter

Summary

Twitter went public prematurely: Two years after IPO and its performance is still lacking.

Twitter's revenue has become massive, but the company's constant search for growth keeps it far from profitability.

I'm going to wait a few more quarters before deciding if Twitter is finally a bargain.

Twitter (NYSE:TWTR) stock has been a rare throwback to the early 2000s tech bubble when unprofitable indie companies would be pawned off on the public, soaring 50%, 100% and even 200% on the IPO date, falling like a stone afterwards.

I bought TWTR the instant it IPOed and was lucky to profit from some of that hype before selling a couple of days after. People often say that day trading is bad, and maybe it is, but when it comes to Twitter it sure beat investing long term.

But looking closer at the company I see that the situation here is not all bad. Revenues are increasing and expenses are going down meaningfully. They also report a non-GAAP profit. The market may be going too hard on this stock and if the company focuses on lowering expenses instead of growth I feel like TWTR can once again start going up.

What I think About Twitter.

In my opinion it would have been better if the company had been bought up by a larger firm instead of going public. TWTR stock is now down over 60% from its IPO price and far from the heady days of $75 a share in 2014. But the good news is that the bleeding appears to have stopped and I think the company may even be undervalued.

I feel this way because the company's revenues are increasing nicely while losses are going down. I think Twitter should focus on consolidating its now significant revenue into profits and focus on monetizing the attention it is currently getting instead of chasing increasingly hard to find and expensive growth.

Why is Twitter performing so poorly?

The idea that a company should be made public while nowhere near profitability is something that should have died in the tech bubble. Granted, sometimes there are exceptions. For example, Amazon (NASDAQ:AMZN) is a firm that can lose money every year but still remain a well performing investment because the company's reinvested revenue is seen as deferred and compounding profits for the future. The market is not giving this same privilege to Twitter.

Some people find it hard to believe that a social icon as ubiquitous as Twitter is could be losing money...


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