It must seem like insult to injury for Twitter (TWTR) stock owners to sit and watch Facebook (FB) shares jump more than 15.5% to near all-time highs following the company’s big Q4 earnings beat. Fairly or unfairly, TWTR and Facebook will likely always be paired together in the public’s mind as the two most popular and recognizable faces of the social media movement.
However, the two stocks could not be more different in terms of their relatively short public histories. Facebook’s highly-publicized IPO debacle is now long forgotten, and early marketplace buyers of FB stock are now sitting on gains upwards of 150%. TWTR stock is now sitting near an all-time low, down more than 75% from its opening price of 2014.
Market sentiment surrounding Twitter stock is now at an all-time low, but is there any reason at all to expect a comeback?
What Is Wrong With Twitter?
Investing 101 tells us that the primary goal of any company is profits, or earnings. That’s why earnings per share (EPS) and price-to-earnings ratio (PE) are fundamental ways of evaluating the value of a stock. However, in recent years, the market has been ignoring traditional valuation metrics for a handful of exceptional stocks. When it comes to Facebook, Twitter, Amazon.com (AMZN) and Netflix (NFLX), the market seems to have only one obsession: user growth.
A quick glance at the earnings per share of these four tech giants shows four lackluster performances in recent years. However, one look at share price performance tells a completely different story.
So why is it that TWTR stock has been punished while these other names have been market leaders? Growth. Specifically, user growth. This graph of Twitter’s sequential monthly active user growth in recent years looks surprisingly like a chart of its stock price.
Add to the mix a parade of recent executive departures, and you’ve got a recipe for all-time lows.
The Lone Exception
However, Bloomberg columnist Shira Ovide recently pointed out…
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