The Absurdity of Twitter (TWTR) Being Punished for Doing the Right Thing

iStock photoiStock photo

As Mitt Romney once famously reminded us all, corporations are people, too. That legal status bestows certain rights on them, such as free speech, but as people, corporations also have obligations and an expected standard of behavior.

The problem that many face, however, is that Wall Street is all too often focused so much on short-term profitability that when corporations try to “do the right thing” their stock gets punished. The drop in Twitter (TWTR) this week is a good example.

The big drop in the stock came on Monday, when the Washington Post reported that millions of accounts had been suspended. Suspensions were reportedly running at around a million a day, with the total expected to be around seventy million.

On that news, traders seemingly panicked, believing that the suspensions would have a negative impact on the analysts’ favorite metric, monthly active users or MAUs. TWTR dropped around ten percent on Monday before recovering slightly by day’s end.

That was despite a reassurance from Twitter’s CFO Ned Segal (on Twitter, of course) that most of the suspended accounts were not included in the company’s MAU numbers, as they were either new or had not been used in over thirty days.

The absurdity here should be clear. Does anyone remember Cambridge Analytica? When that story broke in March of this year, Twitter was hit along with other social media stocks. There was then a generalized worry that social media companies had lost control of their product. Data misuse, misinformation and fake accounts were seen as a major problem for all platforms, and one that would drive legitimate users away. Articles announcing the death of social media were not uncommon.

It is now clear that at that time, Twitter, like rival Facebook (FB) took its social responsibility seriously and decided to do something about the problem. The purpose of these account suspensions is to target the spammers and trolls that are a large part of that bigger issue for Twitter and other platforms.

Just a few short months ago TWTR was being punished for doing nothing about them, now they are being punished for doing something.

It is obvious that this makes no sense, but the lack of logic is most notable in the latest selloff. Even if this did affect the sacred MAUs, which is questionable at best, the move represents an investment in the future not just of Twitter, but of social media as a whole. This is just another example of Wall Street’s short-term concerns creating an opportunity for those looking further ahead.

A few weeks ago, I wrote that TWTR was still a buy despite massive 52-week gains. Short interest was building, making the stock ripe for a squeeze. Since then the short interest has increased and I have no doubt this week’s price drop will have added to it even more. The stock, however, has remained essentially flat since that piece, adding to the pressure on existing shorts.

Early evidence this morning suggests that the knee-jerk reaction of traders to the possible impact on MAUs is being offset by longer-term investors who can see the good in what Twitter is doing and are looking at other long-term positives such as the push towards live-streaming sports.

That will only add to the pressure on the bears. If no downward momentum can be maintained following a news driven drop, is there really any sense in staying short?

If Twitter made a mistake here, it is in not making the extent of their clean-up clear and not satisfactorily explaining in advance what they were doing and why. The fact that news of their account purge came as the result of investigative journalism makes it seem sinister, but it is a good thing. They are acting as responsible corporate citizens, and in doing so securing the future of their business and that is just one more reason to buy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Technology , Social Media , Investing Ideas , Stocks
Referenced Symbols: TWTR

More from Martin Tillier



Martin Tillier

Markets, Bitcoin

Research Brokers before you trade

Want to trade FX?