Why I'm Not Giving Up On Twitter
If you're familiar with my newsletter at all, then you probably know that we normally focus on lesser-known, smaller companies because these are usually most likely to be the stocks that have triple-digit return potential.
My reasoning for adding the company was simple. While still a "game-changer," Wall Street had soured on Twitter as the company continued to struggle to turn a profit more than three years after its initial public offering in 2013.
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But I'm optimistic in a turnaround. For one, as I discussed previously, Twitter is actively taking steps to monetize its huge user base through advertising revenue and video streaming offerings. It's also an enticing acquisition target. And while no deal has yet come to pass, you can bet that it's still on the mind of potential acquirers.
Still, one roadblock remains to Twitter's turnaround, and it's what I want to talk about today.
Management Problems -- Will They Ever Get Sorted Out?
The perception of a company's management -- especially its senior management -- greatly affects how Wall Street treats its stock. This is why shares of Twitter declined on Wednesday, Dec. 21, after the Street learned that VP of Product Josh McFarland was leaving, in addition to chief technology officer Adam Messinger, who said he was leaving "to take some time off."
These two changes happened barely a month after another senior management figure, Chief Operating Officer Adam Bain, parted ways with Twitter as well, after about a year.
All these changes are signs of ongoing tumult at Twitter, as the company continues its transition to a leaner model. Remember that, as part of this transformation, the company is laying off about 8% of its workforce; apparently, senior management hasn't been immune to these changes.
In fact, Twitter is infamous for high upper management turnover: In its 10 years, Twitter has gone through four CEOs if you count founder Jack Dorsey's two stints separately.
There has been some good news in terms of the personnel, however. In October 2015, Twitter installed Omid Kordestani, previously chief business officer at Alphabet (Nasdaq: GOOGL ), as executive chairman of the board of directors. And with its recent acquisition of Yes, Twitter has also obtained a new VP of product.
And the return of Jack Dorsey, who was hired back to the CEO position after seven years away from the company, has also been good news overall. As the company's founder and a creative force in its first years, Dorsey brings invaluable experience to Twitter.
A stable and powerful senior team is important for any company, but especially for a company in a transformative mode. This is why the market has been paying close attention to all these changes.
On the other hand, some of the most recent developments around Twitter indicate that, at least for now, the company has some powerful tailwinds. A potentially huge factor is president-elect Trump's propensity to communicate through Twitter; I discussed this just a couple of weeks ago.
Other factors include the innovative live video streaming features. Aside from acquiring the rights to stream 10 Thursday night NFL games this year (for a total of only $10 million, no less), the company just recently announced it had acquired the exclusive rights to stream the official red carpet pre-show for the Golden Globe Awards in early January.
Twitter Is Still A Game-Changer Worth Owning
Twitter remains a risky investment, with Wall Street all but giving up on it, as most analysts remain negative on the future trends in user growth. This negativity would make any potential comeback much sweeter, because current valuation implies Twitter's growth will continue, even if slowly.
A management team that can properly direct the company through this time of change would be a strong positive. Another couple of quarters could make all the difference. Let's give Twitter some extra time to see whether it can put its house back in order.
Although it's a riskier investment than some of the others in my portfolio, Twitter remains a "Buy" at its current levels due to its significant potential. It's also one of 10 stocks included in my latest report on "shocking" predictions for 2017 . From the advent of virtual reality to my full analysis on the future of Twitter, you won't want to miss out on this year's version of what is always one of the most entertaining -- and profitable -- pieces of research we put out. To check it out, go here .
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