Will Twitter's (TWTR) Fortunes Improve on the Trump Effect?
Since its debut, Twitter Inc. (TWTR) has been a social phenomenon but somehow hasn’t been able to leverage that success to boost user growth.
Twitter has vastly underperformed the Zacks Internet Software industry so far in 2017. We note that shares have declined 10.22% as against the industry’s gain of 20.37% during the period.
Twitter’s Dry Run
Though the company has been working hard to bring about a turnaround, its efforts are yet to yield the desired results. Focus on Live video content, a flurry of live streaming deals, user friendly changes, measures to curb the trolling menace, divestment of non-core operations, and layoffs, the company has done it all. But all these are yet to move the needle for Twitter.
Moreover, CEO Jack Dorsey has often been widely criticized for playing the dual responsibilities of heading both Twitter and Square, especially when both the companies are at crucial junctures. Dorsey was quoted by media reports saying "My intention is to serve both companies in every way I know how and make sure that we are really focused on what’s most important for each."
Last year, rumors about Twitter’s probable sale did the rounds. Big names like Alphabet GOOGL and The Walt Disney Company were speculated to have shown interest in buying the micro blogging site. But t most bidders pulled out of the race. The news managed to drive share prices, albeit for a while, as the easing of the acquisition news led to a drop in the same.
Twitter’s Trump Card
Notably, President Donald Trump used Twitter heavily for his presidential campaign in 2016. Given Trump’s excessive usage, Twitter became all the more popular. Now that Trump is in office, he continues to use the same to broadcast his agendas.
Trump’s tweets have the power to influence markets and make headlines. Twitter reached an all-time intraday high of $25.25 on Oct 5, 2016 when the election campaigns were in full swing. Trump has been breaking stereotypes and making important announcements on Twitter instead of press conferences including his choice of Vice-President, Mike Pence, back in Jul 2016. This practice continues. In the first week of December, through his Twitter account, Trump asserted a 35% import tax. He even took to Twitter to express his dismay when retail giant, Nordstrom decided to drop the fashion line belonging to his daughter Ivanka Trump.
An analyst observes that, "The incessant news flow from the Trump administration playing out on Twitter and the ensuing global reaction pushes Twitter users to be increasingly engaged with the platform."
Despite Trump’s penchant for Twitter, there has been no noticeable "Trump effect" for the micro blogging site yet. It reported an increase of just 2 million new users in the fourth quarter results that overlapped the presidential election results.
Twitter, Inc. Price
Twitter, Inc. Price | Twitter, Inc. Quote
What Lies Ahead?
Amid the exodus of the top level executives and poor quarterly results, Dorsey’s move to buy shares worth $11 million can be seen as an effort to reassure dismayed investors. Twitter investors have been on the edge given its unabated troubles. Generally it is said that when a founder buys shares of his own company, it implies that the stock has much upside potential.
The company has been disappointing investors for a while now, missing revenue expectations and generating poor user growth. At 319 million users, Twitter falls way behind other social media services like Facebook Inc. FB, which has over 1.8 billion users. Even Facebook’s subsidiary, Instagram has over 600 million users.
We have always maintained that Twitter’s ability to attract advertising revenues amid significant competition from the likes of Facebook and Alphabet will be a key factor determining its growth, considering the fact that investment in product development needs to continue.
Currently, Twitter has a Zacks Rank #3 (Hold). A better-ranked stock in the wider technology space is ARRIS International PLC ARRS, which has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Notably, in the trailing four quarters, ARRIS has generated a positive average earnings surprise of 21.33%.
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