I have told you and told you. Don’t buy Twitter Inc (NYSE:TWTR).
But oops, you did it again. Between President Donald Trump’s inauguration and its Feb. 9 earnings call, TWTR stock crept up 11.5%. Maybe the new President will save Twitter, the bulls probably thought. Maybe his opponents can use it to rise against him.
The hype lasted until . They were terrible.
The numbers could be spun. Look, earnings per share were 4 cents better than expected, at 16 cents. Monthly active users were up 2 million from the previous quarter, at 319 million. Tweet impressions and time spent on the site were up over 10% from a year earlier, .
But revenue was $717 million, while analysts had expected $740 million. That’s a huge miss. TWTR didn’t spend money on growth, so growth slowed. Those 2 million users represented less than 1% expansion.
During the morning earnings call, CEO Jack Dorsey called 2016 and indeed it was just that.
It was the year Twitter became a joke.
Going “Noware” Fast
Back when I began my life as a reporter, in the antediluvian days of 1983, a company called Ashton-Tate delivered a crippled version of its DB2 database and called it “Noware.” I and my new friends in the computer press panned it.
Still, Ashton-Tate gave out nice maroon T-shirts, and the next year, as the Spring Comdex show was being set up in Atlanta, all the grunts pushing new booths into position wore t-shirts reading, “I’m Going Noware Fast.”
The point is, the failure of a second-rate product can be seen from a mile away. Twitter is a second-rate product. Our Vince Martin saw executives leaving like rats deserting a sinking ship. Our Dan Burrows called TWTR stock “dead money.”
They were right.
Dorsey Does Not Get It
Careful readers of InvestorPlace may note that I have mentioned a possible model for success. It’s called
Weibo Corp (ADR) (NASDAQ:WB).
What distinguishes Weibo from Twitter is where the traffic moves. It doesn’t move up-and-down, between celebrities and acolytes. It moves left-and-right, among friends. Where do you want to meet for dinner? What movies do you like? When can we get together? Scaling casual, social traffic, small self-selecting groups, is the platform for growth, not media.
When you’re moving up-and-down, between big players and little fish, you wind up having to create features for scaled clients without having clients scaled to handle it. Without such scaling, the service becomes a cesspool and user engagement plummets. That is what you can expect now that the “big story” of a presidential race is over.
Could someone pay a premium for TWTR stock and take out shareholders at a profit?
Depends on how stupid they are. Even now, Twitter’s market cap of $12.5 billion represents 5 times revenues. Let’s not even talk about a price-to-earnings multiple.
If Walt Disney Co (NYSE:DIS) were willing to pay, say, $15 billion to take out current shareholders, it would add roughly 4% to its top line and probably lose traction on its bottom line. Twitter needs software investment to grow and be worthy of a takeout. There is no assurance it would grow even with that.
Recently some of China’s Internet entrepreneurs, like Tencent Holdings (OTCMKTS:TCEHY), have begun bringing innovations like WeChat to American users. I think if Weibo brought out an American version of itself, employing the same strategy it deploys in its home market, it would blow Twitter out of the water — quickly.
Twitter is not necessary. It’s not a “must-have” like an Apple Inc. (NASDAQ:AAPL) iPhone, or Facebook Inc (NASDAQ:FB), or Alphabet Inc. (NASDAQ:GOOGL) search platform Google.
Twitter is not a franchise worth buying, at any price. Fool me once, shame on me. Fool me twice, don’t get fooled again.
is a financial and technology journalist. He is the author of the sci-fi novella , available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at . As of this writing, he was long AAPL, DIS, FB and GOOGL.
