Twitter Stock Has a Big Problem

USER GROWTH HAS BEEN A constant struggle for Twitter Inc (NYSE: TWTR) in recent years, but rising costs may be the company’s biggest hurdle. MoffettNathanson analyst Michael Nathanson reiterated his “sell” rating for TWTR stock and says investors may not fully appreciate the financial impact of intense regulatory scrutiny.

Nathanson says Twitter’s reported operating expense growth in the zero to 3 percent range year-to-date is deceptive, and a closer look at Twitter’s regulatory filings reveals a much more bearish picture.

“After digging into the most recent 10-Qs, we would argue that true underlying cost growth has actually been materially higher in the range of 13 to 15 percent,” Nathanson says.

One of the drivers of these rising costs has been Twitter’s efforts to improve the quality of its platform by identifying and removing fake and malicious accounts. Last month, Twitter, Facebook (FB) and Alphabet (GOOGGOOGL) removed hundreds of accounts tied to Iranian and Russian propaganda groups attempting to influence the U.S. midterm elections. Earlier this month, Twitter CEO Jack Dorsey testified in front of Congress to assure officials that the company is doing everything in its power to prevent election meddling.

Twitter has also been aggressively pursuing streaming content deals in an effort to boost its user count and engagement. In August, the company announced a new deal with Blizzard Entertainment’s Overwatch League to stream esport matches and a weekly highlight show.

While Twitter’s cleanup efforts and content deals are good for the company’s brand and reputation, Nathanson says costs may catch up to the company in the near future.

“Ramifications for Twitter’s top-line have been well covered as our revenue estimates are close to the Street’s,” Nathanson says. “Now, instead, we are most concerned about cost growth.”

TWTR stock is down 36.6 percent in the past three months, including a 21 percent single-day drop in July after Twitter reported a drop of 1 million monthly active users in the second quarter.

However, not all analysts are worried about Twitter’s costs and user count. Citron Research’s Andrew Left says Twitter has a unique value as a news source and conversation medium.

“Twitter has never been more relevant than now, and money follows relevancy,” he says.

Left says…

Click here to continue reading

Want to learn more about how to profit off the stock market? Or maybe you just want to be able to look sophisticated in front of your coworkers when they ask you what you are reading on your Kindle, and you’d prefer to tell them “Oh, I’m just reading a book about stock market analysis,” rather than the usual “Oh, I’m just looking at pics of my ex-girlfriend on Facebook.” For these reasons and more, check out my book, Beating Wall Street with Common Sense. I don’t have a degree in finance; I have a degree in neuroscience. You don’t have to predict what stocks will do if you can predict what traders will do and be one step ahead of them. I made a 400% return in the stock market over five years using only basic principles of psychology and common sense. Beating Wall Street with Common Sense is now available on Amazon, and is always available on your local internet!