- Twitter shares have tanked 14% in a week and could fall further.
- Given the heightened volatility, Twitter is a very risky bet in the near term.
- But Twitter Inc stock is not dead yet.
Shares of San Francisco, California-based Twitter Inc (NYSE:TWTR) have tanked nearly 14% from the highs recorded a week ago. Reportedly, a buyout is off the table for now, the primary reason for the sharp correction. What's scary for investors is that this has become a recurring trend, with the stock running up and subsequently losing nearly 14% twice since August. And with analysts predicting a further 8% fall from its last closing price, Twitter is best avoided in the short term. But Twitter Inc is not dead yet. Here's why.
First, The Near Term Risks
Twitter shares have fallen nearly 14% in a week. However, there may be more pain in the near term. The consensus estimate for Twitter currently stands at $16.4, indicating a further downside risk of 8%. But, that's not all. The heightened volatility is a bigger risk for investors. Twitter shares rising sharply on the back of buyout rumors and then tanking has become a recurring trend.
Since the beginning of August, nightmarish gyrations have become a part of life for Twitter investors. Twitter shares rose from a low of $16.2 a share at the beginning of August, to touch $21.1 mid month and roll back down to $18.1 towards the end of the month. That's a 30% rally and a 14% drop in the span of less than a month.
Just as speculation seemed to be subsiding, a statement by Twitter co-founder Evan Williams sparked off another rally, lifting the stock to $20.6 a week ago. The stock now stands at $17.7 a share, 14% lower than a week ago.
What's more, a headline on Yahoo Finance today reads "Twitter Inks Streaming Deal with Cheddar Amid Buyout Rumors". As it stands, this trend looks likely to continue for a while. While short-term traders might relish such an opportunity, such a stock is not suitable for conservative long-term investors. Investors would do well to stay out of this till Twitter's quarterly results show some signs of improvement.
But Twitter Inc Is Not Dead Yet
The Growing Promise Of Live Streaming
Twitter has made a lot of promising moves lately, and the best of them is live streaming. After recently streaming the Wimbledon tennis finals and the Republican and Democratic national conventions, Twitter has struck deals to live stream NFL (National Football League) games, MLB (Major League Baseball) games, NHL (National Hockey League) games and exclusive content produced specifically for Twitter by the NBA (National Basketball Association.
The micro-blogging site has signed a deal with Sky Sports to stream highlights and key moments from the hugely popular English soccer championship, Premier League, and select programs from Bloomberg TV. It has also lined up a multi-sports highlights show called "The Rally", exclusively produced for the platform by 120 Sports.
Adding to its repertoire, Twitter has now signed an exclusive deal with video news network Cheddar, to live stream its opening and closing coverage of US stock markets.
Twitter is all about news and instant updates, and the ability to provide all of that in video formats could be a big draw. Twitter's focus on live streaming could aid sales numbers and engagement metrics, both of which could use some help right now. Twitter is building an enviable niche for itself as it transitions into a video version of its current self.
Paying Users To Create Videos Could Be A Masterstroke
Twitter also recently announced that it will share revenues with users who post videos on the platform. Sounds familiar? Twitter has taken a leaf out of YouTube's book, in what may be a great move for the platform. What's more, Twitter will pass on 70% of the revenue generated to creators, compared to YouTube's 55%. Of course, the sheer audience size on YouTube and the quantum of ad-Dollars spent on the platform could offset that, but it's a good start for Twitter.
Improvement In Free Cash Flows
After posting negative free cash flows for the most part of its life as a public company, Twitter recently registered positive free cash flows for the third quarter on the trot. Twitter will find this very handy in its efforts to acquire more licenses to expand its menu of live streaming content.
There's also some excitement about the company's tweak to its 140-character limit. However, the limit itself hasn't really changed. What's changed is that starting Sep 19, Twitter will stop counting photos, videos, and user polls as characters. On the surface, the move seems more incremental than game-changing.
Summing It Up
Twitter shares have tanked 14% in a week, but the fall may not be over. The heightened volatility since August is a huge risk, and given the recurring trend of buyout speculation, conservative investors would do well to stay out of the stock in the near term. That said, Twitter's recent moves could turn things around for the company, making it an interesting stock to watch over the coming 6 months.