) was the most talked about initial public offering in 2013. Even
though there were larger offerings, such as Plains GP Holdings (
), Hilton Worldwide (
) and Zoetis (
), social media company Twitter got almost all of the hype.
That makes sense in that Twitter, as a new technology, has a
much bigger potential for growth than any of those other
companies. That potential for growth also why Twitter shares
traded as high as $74.73 in late December without the company
providing any meaningful updates since its shares started
trading. Considering that the initial offering price was $26 per
share, that's a tremendous appreciation based almost entirely on
enthusiasm about the future.
That kind of valuation is hard to maintain without results.
Unfortunately for Twitter and its shareholders, results are where
it ran into a problem.
The stock had come down to $65.97 before reporting earnings after
the close of the market on Feb. 5. And the headline from the
earnings report were good. The company's adjusted earnings and
revenues were better than expected, but unfortunately, subscriber
growth slowed in the most-recent quarter and perhaps more
alarmingly, the number of timeline views actually fell.
Traders, spooked by those numbers, sold the stock aggressively
the next day. When all was said and done, TWTR closed the first
trading session after its first earnings report at $50.02.
I like Twitter. I'm an avid user of the company's product and
think it is an incredible tool to communicate with a wide range
of people, or to follow events in real time. (Follow me
) That said, I'm not sure exactly how popular the service will
The 140-character limit means there are lots of small posts.
The character limit also leads to abbreviations and creative
spelling to get your point across in the allotted space. This
leads to a stream of tweets that moves quickly and could be
incomprehensible to newcomers. This relative opaqueness means it
can be hard for new users to figure the service out, while being
almost addictive for its real fans.
I don't think Twitter is going to wither and die like some of
the first wave of social networks. I think the people who like it
really like it, while some people will probably never get it. The
company is actually making more money per user than ever before,
a trend I would expect to see continue as Twitter and
advertisers, figure out how best to reach users. The company also
has the potential to a lot of really interesting things with the
massive amount of data is has.
How much is the company actually worth? I have no idea. The
market doesn't either. The only thing I can tell you about the
future when it comes to Twitter's shares is to expected continued
My feeling is that the stock is going to head lower for a
while as investors sour on the stock after being "burned" by this
earnings report. It may follow a Facebook (
)-like trajectory and wander in the wilderness for a while before
eventually hitting new highs.
Chart courtesy of
Traders may consider a March 57.50/60 bear-call spread. This
position returns a 35-cent credit. That's a 16.28% return, or
148.55% on an annualized basis (for comparison purposes only.)
This position will return a full profit so long as the stock is
below $57.50 at March expiration, giving it about 15% downside