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Can Twitter (TWTR) Rebound in 2017 After a Dismal 2016?

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Shares of Twitter Inc.TWTR continue to underperform the Zacks Internet Software industry in 2017. Year-to-date, the stock has gained 1.9% compared with the industry's gain of 6.3%. We also note that shares have vastly underperformed the industry in the past one year with shares declining 2.4% as against the industry's gain of 17.8% during the period.

Twitter stock witnessed a roller coaster ride in 2016. Shares plunged almost 37% early in the year following disappointing user growth in fourth quarter 2015. In fact, Twitter's lackluster performance throughout the year was primarily due to sluggish growth of its user base. Additionally, continuing investments in product development, increasing costs related to international expansion and higher sales & marketing expenses impacted the bottom line.

Moreover, high profile exits also dampened investors spirit as shares touched a 52-week low on May 24. (Read More: Twitter Troubles Continue Unabated: More Executives to Quit )

However, shares rebounded strongly in October following rumors that Disney DIS and Alphabet GOOGL were interested in acquiring Twitter. Shares reached a 52-week high of $25.25 on Oct 5, 2016, surging almost 84% from the lows it touched in May. However, as the rumors subsided, the prices fell with a thud by almost 30%.

Can Twitter Rebound in 2017?

We believe that stalled user growth and increasing competition from the likes of Snapchat are major headwinds for the company. In the last reported quarter, monthly average users (MAUs) grew only 4 million to 317 million.

However, the company's focus on improving its core business is a positive in our view. Twitter recently sold its developer product Fabric to Alphabet, which reflects management's focus on re-building its core businesses and cutting expenses on its non-core business divisions. It is also in line with the company's cost cutting agenda to achieve its long-term EBITDA target of 40%-45%. Notably, Twitter has reduced 9% of its workforce worldwide in the recent quarters.

Twitter, Inc. Price and Consensus

Twitter, Inc. Price and Consensus | Twitter, Inc. Quote

We believe that the divestiture of Fabric along with the reduction in the workforce is part of CEO Dorsey's 'turnaround strategy' for Twitter. We note that despite reporting losses, the company has outperformed the Zacks Consensus Estimate in the trailing four quarters. Moreover, the current year loss estimate has also improved from 43 cents to 37 cents per share in the last 90 days.

Currently, Twitter has a Zacks Rank #3 (Hold). A better-ranked stock in the wider technology space is Veeva Systems Inc. VEEV , which has a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Notably, in the trailing four quarters, Veeva has generated a positive average earnings surprise of 47.77%.

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Walt Disney Company (The) (DIS): Free Stock Analysis Report

Alphabet Inc. (GOOGL): Free Stock Analysis Report

Veeva Systems Inc. (VEEV): Free Stock Analysis Report

Twitter, Inc. (TWTR): Free Stock Analysis Report

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


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

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