Twitter stock forecast: disappointments, part-time CEO plus political and security issues limit stock upside
09:11, 24 July 2020
Social media company Twitter has developed a reputation for getting investors excited and following up with disappointing Twitter stock news. Case in point: Twitter’s stock started 2019 close to the $30 (£24, €26) level and rose to a 52-week high of $45.85 in September.
One of the hottest tech stocks in the first three calendar quarters of 2019 signalled to investors it can show impressive growth metrics. Second quarter 2019 revenue was up 18 per cent year-on-year, monetisable daily active users (mDAUs) were up 14 per cent to 139 million, average domestic mDAUs were up 10 per cent to 29 million and international average mDAUs were up 15 per cent at 110 million.
Investors cheered the encouraging Twitter shares news. That is before reality hit in and Twitter followed up with third-quarter results in October that showed it is nothing but a “wannabe” social media platform. In one day alone following the earnings release, Twitter’s stock erased around half of all gains recorded throughout 2019.
The Twitter stock trend has been established for 2020 and beyond: sell on any gains because the company will disappoint.
Too political for comfort
Twitter has a responsibility as a major social media outlet to protect the safety and wellbeing of its user base and stakeholders. No one can fault the company for taking its obligations seriously, but investors have an issue when the company takes this a step further.
Twitter is playing with fire when it takes it upon itself to start protecting users from what may or may not be misleading, insensitive or politically extreme content. The company temporarily banned the popular right-leaning financial and political blog ZeroHedge in early 2020, and many right-leaning political figures and commentators claim they are being “shadowbanned”. In today's politically charged environment, angering tens of millions of users is just a bad business strategy.
More recently, Twitter and rival social media platforms were warned that Chinese companies targeting customers worldwide will cut back billions of ad dollars. The move was considered a form of retaliation against Twitter’s stance in supporting pro-Hong Kong democracy activists.
The purpose of mentioning both examples isn’t to take a political stance in agreeing or disagreeing with Twitter’s internal policies or supporting one side of the political spectrum. Rather, it may serve as a sign that Twitter’s stock is mired in political controversies that negatively impact investor’s desires to invest in Twitter stock.
What is your sentiment on US30?
Part-time CEO doesn’t bode well for investors
Twitter co-founder and CEO Jack Dorsey splits his time with running his other company, Square. Needless to say, a part-time CEO can never bode well for any Twitter stock forecast. No matter what Dorsey does or says, his divided attention will always attract negative attention.
Back in late 2019, NYU Stern Professor and Twitter shareholder Scott Galloway wrote an open letter to Twitter Executive Chairman Omid Kordestani. His intentions couldn’t be any clearer as he wrote: “My primary objective is the replacement of CEO Jack Dorsey.”
The case for ousting the CEO can be made based on a basic Twitter stock analysis. Since Dorsey returned to Twitter in mid-2015, shareholder return (at the time of the letter) has been a negative 15 per cent, versus Facebook at 129 per cent, S&P 500 at 50 per cent and Dow Jones US Media Index at 29 per cent.
Of course, there is reason to believe that Dorsey is distracted at Twitter given his financial interests are tied with Square. Specifically, 85 per cent of Dorsey’s wealth is tied to his fintech company. But Dorsey may not be the problem, rather the end result of a board of directors who “enable this reckless behaviour” of allowing a part-time CEO to run the company.
And then there was the controversial announcement that Dorsey wants to spend time in Africa throughout 2020. While his plans were cancelled due to the global Covid-19 pandemic, investors need to ask: in what universe will Twitter stock rise when it is led by an already part-time CEO that is located many time zones away?
Investors who assumed at the time that this topic would just disappear in 2020 were mistaken. Leading activist investor Elliott Management amassed a large stake in Twitter’s stock and pushed for Dorsey’s ouster. The two sides ultimately settled on Twitter adding two new members to its board and accepted a $1bn investment from investor Silver Lake.
Twitter stock forecast rises and falls after job-posting ad
In early July, investors and traders spread a Twitter job post. The company was recruiting engineers to work on the company’s “first” subscription business. Naturally, this immediately boded well for a bullish Twitter stock forecast because if there is anything Wall Street and investors love it is a recurring and predictable subscription revenue stream.
Media outlets started to speculate some of the ways Twitter can monetise its platform and generate incremental revenue that wasn’t previously expected. Short-term investors and traders took the bullish side of the Twitter stock buy or sell debate, but the party didn’t last long.
First, notable tech expert Gene Munster speculated on CNBC that if accurate, Twitter will likely position its new product as a consumer-facing data subscription service. At best, it would attract 10 million users at $600 a year and this would add a not-so-impressive 0.2 per cent to Twitter’s revenue.
And then Twitter itself changed the job listing to merely seeking an “Android engineer” – so any long-term bullish Twitter stock price forecast is now questioned.
Twitter can’t even secure its own platform
Perhaps one of the most notable events of 2020 that would impact Twitter share price forecast is the company’s inability to even control its own platform. Tens of millions of confused Twitter users couldn’t understand why Barack Obama, Joe Biden, Elon Musk, Bill Gates, a few corporate accounts and others are handing out free money through what was later revealed to be a Bitcoin scam.
Twitter suffered an embarrassing security breach impacting what should be two of the most secure accounts in the entire platform: those of a former President and current presumed Democratic presidential nominee who also happens to be the former Vice President.
Twitter CEO Dorsey tweeted, presumably while taking a break from running Square, that this is a “tough day” for Twitter and “We all feel terrible this happened.”
Notable security expert David Kennedy from the consulting firm Trustedsec LLC commented: “Nothing is safe right now on Twitter.”
What role does all this have in any Twitter stock analysis? Well, when the Federal Bureau of Investigation needs to get involved, it can’t be good.
Bottom line: Twitter has too many problems
No matter how you look at it, Twitter just has too many problems on its hand, even for a full-time dedicated CEO to fix. Why any investor would want to stick around and hold TWTR stock after years of disappointment is a mystery.
At best, the Twitter platform and user base remain consistent enough to justify a modest upside as part of a Twitter share price forecast. But there is a reason why the stock is nowhere near its all-time high of more than $74, and that is because investors have little confidence it can ever achieve its full potential.
According to TipRanks’ latest Twitter stock forecast, based on 26 analysts offering year-long price targets, the average price target for TWTR is $33.43, which represents a 9.67 per cent decline from the latest price of $37.01 and is 27 per cent down on its 52-week high of $45.86.
The highest analysts’ price target for the next 12 months is $43.00, while the lowest expected price is $23.00.
Read more: Unilever share price forecast: will the stock continue to outperform the market in 2020?
Markets in this article