Why I'm Changing My Stance on Twitter... Again!
I have advised my readers to trade Twitter (TWTR) several times in the past. I recommended buying the stock when it was trading at roughly $16 and then recommended going short when it went to $20. While Twitter’s turnaround story is still not on track, I believe traders can still profit from the movement of the stock in the short-term.In this article, I will focus on the reasons why I think Twitter is a good buy heading into the earnings season.
Strong MAU and DAU growth
No matter what steps Twitter take to improve its business, the value of the stock will ultimately depend on one thing, which is user engagement.
The number of Tweets and retweets are more important than any other metric, and this is the exact reason why I am bullish on Twitter going into earnings season. I believe there are two factors that will drive Twitter’s MAUs and DAUs this quarter.
First is the amount of shootings and violence over the last few months. Twitter is probably one of the fastest sources of news out there. People tend to use Twitter more during controversial events. There were many cases of shootings in the last three months. The shootings were well covered in the media and were obviously trending on Twitter as well.
The shootings also led to the rally in gun stocks like Sturm, Ruger (RGR) and Smith and Wesson (SWHC), both of which I recommended buying via call options (up 200%) just a few weeks ago. While I condemn the violence, (as insensitive as it may sound) investors can make money from those events. Buying gun stocks (via options) did lead to triple digit gains, but I think investors can also benefit from buying Twitter before earnings.
The second event that could drive user interaction is soccer. Soccer is the most popular game in the world and there have been many developments over the last few months that have surprised the entire soccer world. Be it the arrival of Jose Mourinho at Manchester United, or the Euro 2016, or several high profile transfers. All these events were pretty rare and would have led to significant increase in user interaction. As a result, I am bullish on Twitter heading into earnings.
Twitter is not a turnaround candidate yet, but I think investors should buy the stock heading into earnings. Due to the reasons mentioned above, I am confident that Twitter will report better-than-expected MAU and DAU growth. Personally, I would recommend going long on Twitter via options.
Disclosure: No position