Twitter Stock Has Long-term Potential with Short-Term Pitfalls

InvestorPlace - Stock Market News, Stock Advice & Trading Tips

I'm a social media guy. In fact, it's hard not to be in this information age. That said, social media as an investment class hasn't worked out well this year. The one exception, at least on paper, is Twitter (NYSE: TWTR ). Year-to-date, Twitter stock is up over 44%.

For context, Twitter's competitor, Facebook (NASDAQ: FB ) is suffering an uncharacteristically poor year. FB shares are down nearly 15% since the beginning of this year. We also have Snap (NYSE: SNAP ), which appears in danger of completely evaporating. SNAP is down a horrific 55% YTD.

However, the markets may have offered a respite to the entire sector on Halloween day. TWTR stock gained 2.6% as the rest of the markets began a potential recovery process. Facebook gained nearly 4%, while left-for-dead Snap managed to move up almost 3%.

Plus, it's worth reminding investors that Twitter stock has enjoyed a remarkable month in October, gaining nearly 22%. Over the same timeframe, the Dow Jones Industrial Average lost roughly 6%.

But before investors buy into this sector, they should keep in mind what initially tanked social-media companies. The common factor here is subscriber growth, or lack thereof. Facebook disappointed because it didn't grow enough . Twitter stock and SNAP recently experienced worrying declines in active users worldwide.

Obviously, fewer numbers reduces revenue-making opportunities, something that the company requires to further boost TWTR stock. But another, more devastating headwind is public sentiment. Evidence suggests that Americans are getting tired of social media.

Earlier this year, Salon detailed the harrowing details of cyberbullying . Of course, Facebook is still grappling with the consequences of the Cambridge Analytica controversy . People feel that social media is now hurting more than helping. This could negatively impact Twitter stock down the line.

Potential Upside Exists for Twitter Stock Despite Rough Waters

With major events such as the October meltdown and the trade war with China swirling around us, I want to clarify my position on social-media firms.

The easy one is Snap. This is a company that, unless a miracle occurs, will have trouble maintaining relevancy. Both competitive challenges and a narrow demographic focus hurt SNAP stock.

On the other end of the spectrum, I'm still long-term bullish on Facebook. However, I concede that the markets have not shared my opinion so far. Much of the negative sentiment about social media directly blames Facebook.

This brings us to Twitter stock. I'm not crazy about the company but I'm not necessarily against speculators slowly building a position. For starters, I'm not as horrified about Twitter's active-user decline as much as Snap's equivalent metric. While Twitter user growth has definitely stagnated, the platform has proven its longevity. We didn't see worrying slowdowns until recently.

In contrast, Snapchat is much younger and is already petering out. This suggests - no, screams - that SNAP has lost relevancy. You can't say that about TWTR, which remains a viable channel for businesses, celebrities, and news.

This segues into another point: Twitter stock fundamentally has better, and believable opportunities. Demographically, I consider TWTR "ageless." It's a great way to blast your business or social event.

Technical Pressures Still Weigh on TWTR Stock

As I said earlier, I'm not opposed to speculation towards TWTR stock. However, I'd advise bulls to carefully tread water. Although I like some of the fundamental backdrop, the nearer-term technical posture is a concern.

Rather than go through a cumbersome explanation, I made a simple chart to communicate my hesitation. On a wider scale, Twitter stock exhibits what appears as a bearish head-and-shoulders pattern. In addition, we have what possibly is a horizontal resistance line around $36.

If so, traders should avoid going all-in. Perhaps stake a measured claim at current levels, but prepare yourself for volatility. A head-and-shoulders pattern could see Twitter stock fall below the $30 level, perhaps down to $25.

If TWTR does fall that low, however, I personally would consider jumping onboard. The three-way social media arms race is about to lose its third wheel. While cynical, that too favors Twitter stock.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

More From InvestorPlace

Compare Brokers

The post Twitter Stock Has Long-term Potential with Short-Term Pitfalls appeared first on InvestorPlace .

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.

In This Story


Other Topics


Latest Markets Videos


InvestorPlace is one of America’s largest, longest-standing independent financial research firms. Started over 40 years ago by a business visionary named Tom Phillips, we publish detailed research and recommendations for self-directed investors, financial advisors and money managers.

Learn More