Why Twitter is a Screaming Buy

Twitter (TWTR) took a huge dump a few days ago on July 27 when it reported earnings, and by the end of the day, the stock dropped by around 14% from the previous day’s close. A couple weeks ago, it had been trading over $20 a share, and now it is less than $16 a share, at the time I am writing this.

The company reported negative earnings, as usual, so why is it a screaming buy? Let’s start off with the company’s biggest asset, President Donald Trump. Yes, Trump provides an advantage to Twitter that no other company has. He tweets almost every single day, and on many days, he tweets multiple times a day. No other president, or for that matter, no other head of state, has ever tweeted so much in the history of mankind. (You know what I mean.) Trump doesn’t use Facebook, he doesn’t use LinkedIn, he doesn’t use Snapchat, he doesn’t use Instagram, he doesn’t use any of the other social media platforms, he doesn’t even send out mass emails. He uses Twitter.

Trump is Twitter’s Biggest Asset

So, the President of the United States is providing free advertising for the company. Imagine the free advertising that Blue Apron would get if Trump ordered from them every day (and told everyone about it).

One of these days, someone is going to figure out how to monetize this unique feature. It may or may not be Jack Dorsey, Twitter’s CEO. It may or may not be Anthony Noto, Twitter’s COO. Or it may be someone new that the company brings in. But someone is going to do it.

Earnings?

But what about earnings? Yes, Twitter hasn’t been generating a profit. But look at Facebook (FB). The company lost $56 million back in 2008, and finally turned it around in 2009 with net income of $229 million. Everyone complains about Amazon (AMZN) not making any money. It lost $278 million in 2014 then showed a profit of $618 million the following year. LinkedIn generated losses in 2010 and 2011, then went profitable in 2012.

Here’s the thing about earnings. When you have income, you have to pay taxes. Once that money is paid out to the IRS, it is dead money; it is money that doesn’t benefit the company. However, applying excess cash flow to tax deductible expenditures, such as more employees, buildings, equipment, machinery, research and development, marketing, and advertising, will benefit the company. These expenses help the company grow and keep taxes low. As long as revenues keep increasing, it pays off in the end, as it did for Facebook, LinkedIn, and Amazon. (Yeah, yeah, I know, Amazon has an outrageously high price-to-earnings ratio and forward P/E, but look at the growth rate of revenues and earnings. Income for the latest fiscal year spiked 292% over the previous year.)

6 Revenue Increasers

But what can Twitter specifically do to increase revenues and earnings? Here is a list of suggestions.

  1. Offer ads that appear by every tweet made by Trump. These ads could appear either above or below the tweet, or both.
  2. Offer ads that appear by every major celebrity tweet, especially those with over a million followers.
  3. When you check your lists, there should be an ad above or below the lists.
  4. In the left hand column, under Trends for You, an ad should be available to advertisers. It would not be intrusive to users who first log on, but would be a great location for advertisers when users scroll down.
  5. Aggressively go after major advertisers to pay for promoted tweets (Amazon book of the day, Wal-Mart deal of the day, Priceline travel deal of the day, etc.)
  6. Set up a Tweet Bank. There are tweets that I want to save that have interesting links, gifs, or pictures. However, when I look for them after a month or two, they are very hard to find, even if I check my Like list. It would be nice if there was a little Save icon next to the Direct Message icon, where I could save the tweet into my Tweet Bank. (This isn’t really a profit making suggestion, just a user enhancement making idea.)

By the way, this is not a stock recommendation (in spite of what the title of this article says). I never give investment advice. This is just a suggestion for your own research and entertainment.

One of these days, Twitter will turn around. The bird will fly. It’s just a matter of who, what, and when.

Disclosure: Author owns TWTR and AMZN.

The Twitter Annual Meeting

Me & Jack Dorsey, Twitter CEO
Me & Jack Dorsey, Twitter CEO

The Twitter Annual Meeting was held yesterday at the Twitter headquarters in San Francisco on Market Street. Jack Dorsey, the CEO, spoke about the goals for the company.

Areas covered were:
Improving Timeline
Notifications
Safety, with regard ti transparency, better tools, and deep learning & machine learning

Dorsey talked about three major improvements:

  1. Twitter Lite – for Safari or Chrome on mobile devices
    30% faster load times
    Uses less than 1 meg of data
    Looks identical to the app
    Can turn on Data Saver – all images, videos, gifs blurred
    Reduce data usage by 70%
  2. Explore tab -brings everything together
    Trends, Moments, Live Events
  3. Mute – Safety control
    Notifications -muted words -pause and not see

Anthony Noto, Twitter’s CFO, then spoke. He talked about the Live Streaming Video and expansion into:
Sports
News
Entertainment
ESports

He said that in Q1, there was 800 hours of live video content, over 450 events, with more than 200 premium content partners.

All the shareholder resolutions passed except the one that proposed that Twitter become a user owned company. The proposal said:

“A community-owned Twitter could result in new and reliable revenue streams, since we, as users, could buy in as co-owners, with a stake in the platform’s success. Without the short-term pressure of the stock markets, we can realize Twitter’s potential value, which the current business model has struggled to do for many years. We could set more transparent accountable rules for handling abuse. We could re-open the platform’s data to spur innovation. Overall, we’d all be invested in Twitter’s success and sustainability. Such a conversion could also ensure a fairer return for the company’s existing investors than other options.”

The questions and answers were related to looking into a Twitter Prime type service where some users could pay for a premium service, and utilizing artificial intelligence through machine learning and deep learning for timelines and notifications.