How much is Twitter (TWTR) stock really worth? That question has never been easy to answer, even if we were granted more than 140 characters in our attempt to do so. And it’s even less clear now given Amazon (AMZN) has just ascended to become the third-largest digital ad platform behind Google (GOOG, GOOGL) and Facebook (FB).
Twitter stock closed Friday at $28.50, down more than 4.5% amid the broader tech selloff. On the bright side, the shares have risen 18.7% year to date, besting the 9.5% rise in the S&P 500 Index. But when factoring last week’s 5.4% slide, the San Francisco-based micro-blogging site has seen 37.9% of its value wiped out over the past three months. And there are now persistent questions about the company’s earnings potential, which could limit its stock appreciation over the next 12 to 18 months.
How should investors play the slide in TWTR shares, particularly as it approaches its next earnings release, which is expected sometime in mid-October? And just as important, is TWTR now a better value than Facebook or even Snap (SNAP), which have suffered share price declines of their own?
However, given that Twitter relies almost exclusively on advertising dollars, the fact that Amazon has just ascended to become the third-largest digital ad platform, according to research firm eMarketer, makes Twitter’s growth prospects more ominous. eMarketer forecasts U.S. advertisers could spend some $4.61 billion on Amazon’s advertising platform in 2018. That level of spending would translate to a surge of 144.5% year over year.
Amazon’s digital ad segment, which surpassed both Microsoft (MSFT) and Verizon’s (VZ) Oath conglomerate, should remove any doubt as to whether the e-commerce giant can emerge as a meaningful rival to the biggest ad publishers in the world. Now a multibillion dollar business, Amazon’s ad segment continues grow as companies are increasingly buying ads on the platform.
In this case, this drastic and immediate rise in Amazon’s digital ad business is likely to have wide-ranging implications for those within the industry. And this could impact Twitter more than Facebook. Looking ahead, when Twitter reports third quarter result in October, analysts will be wanting to see earnings of 14 cents per share on revenue of $703.72 million.
On a year-over-year basis, those results would mark respective increases of 40% and 19.35%. Indeed, both the top- and bottom-line expectations suggests a healthy business. But the overall trends would remain challenged. It would be foolish for advertisers to not want the best-bang-for-their-buck by buying ad space on Amazon — a platform where the main purpose is to shop.
And assuming Amazon can continue to grow its share of the digital ad market, driven by the fact people come to its platform to shop and spend money, Twitter stock — which still commands a premium multiple of 40 — will continue to erode unless it finds ways to catapult itself to be on par with Amazon.