Twitter Inc ’s stock has had one hell of a roller coaster ride. Though shares are down 23% year to date, they closed yesterday up more than 2.5%. Volatility has been rampant, and Wednesday was a perfect example of that. The stock was hovering near record lows for much of the session, when rumors of a potential takeover sent shares soaring as high as 13%.
With no bottom in sight, investors are confused. And adding to that confusion is the lack of any consensus on Wall Street.
Twitter is at Best a “Hold”
With Google and Facebook still gobbling up the bulk of online ad spend, the future of Twitter Inc ‘s comeback plan is unclear, reckons analysts Mark Mahaney and Andrew Bruckner of RBC Capital Markets. The investment bank has a “sector perform” rating on the stock.
Twitter’s monthly active user growth had decelerated to 11% during the third quarter of 2015. In fact, measurement firm comScore estimates that the declining user growth was coupled with deteriorating engagement. Analysts have “great grist for a sell call,” Mahaney and Bruckner wrote in a January 10 earnings preview.
But not everything about the stock is negative. Even by monetizing its users at a fraction of what its bigger rivals are doing, Twitter has managed to retain its “unique value proposition” and “strategic significance.” No wonder the stock can still be found in many portfolios despite the severe hammering it has received this year.
Twitter Q4 Numbers Will Be Key
Robert Peck, Internet equity analyst at SunTrust Robinson, has recently upgraded Twitter Inc ahead of what he sees as strong growth catalysts. He told CNBC last week that changes like tweets appearing in Google search and expansion in live video augur well for the stock.
“As that starts to grow and turn around, you can now start to change the whole meme of the story as going more towards a sort-of billions platform user system,” Peck said. “What you need now for this stock to work…is you need to show a proof point here. You need to show that the users can start to inflect, and grow again.”
So given the conflicting outlooks, what does an average investor do? The logical step would be to wait for quarterly earnings, slated for release on February 10, to get a better picture of Twitter’s internal state of affairs. If user growth and engagement doesn’t pick up during the fourth quarter, long-term investors would be better off without the stock.