Is It Finally Time to Buy Twitter?

If you would have asked me last month about Twitter’s (TWTR) valuation, I would have advised you to short the stock. However, after the market correction, I think Twitter is starting to look attractive. Twitter is down about 25% in 2016, and I think it may be finally time for consider the stock as a speculative investment option.

I had recommended investors to short Twitter just a few days after it went public. Twitter has fallen considerably from its IPO price and with the stock trading under $18, I think shorting it is definitely not an option for now.
Let’s take a look at the reasons why I think Twitter may have bottomed.

Valuation

After the recent plunge, Twitter is trading at 11x EV/EBITDA ratio which is not really expensive for a company growing as fast as Twitter. Twitter may not be profitable yet, but Facebook was also a loss making company during its early years.

Instead of focusing on profits, investors should focus on Twitter’s user growth. While Twitter’s monthly active users’, or MAUs, growth has slowed down in the recent past, it could move higher due to the integration of Periscope.

MAU growth is important to push Twitter’s stock higher in the short term. Remember, Facebook also started generating real GAAP earnings when it hit $700 million in revenue. So, investors shouldn’t worry about monetization for now and should focus on Twitter’s user growth which can be propelled by the integration of Periscope.

Periscope is a live video streaming app for iOS and Android developed by Kayvon Beykpour and Joe Bernstein and it could help Twitter gain back its MAU growth momentum. Periscope has grown tremendously over the last few weeks and is showing no signs of stopping yet. The company’s metrics have more than doubled since August and an impending update of the app should further help its user growth.

Integrating Periscope should open up better opportunities for Twitter. In addition, it should also accelerate its MAU growth which could propel Twitter’s stock higher from the current levels.

Conclusion

MAU growth is important for Twitter’s stock in the short-term. Integration of Periscope should help Twitter’s MAU growth and should also help it monetize its user base in the longer term. Given that Twitter has fallen considerably in the last few months, I think the stock has limited downside. The risk/reward ratio is favorable and investors should consider buying Twitter at the current levels.
Published on Jan 25, 2016
By Ayush Singh

Copyrighted 2016. Content published with author's permission.

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