TWTR Stock Jumps On Bullish Analyst Note And Buyout Speculation. Can It Last?
- SoftBank's plan to invest $50 billion in the US seems to have fueled buyout speculation.
- Canaccord Genuity sees user growth and engagement improving in Q4.
- But they've been way off before. Own Twitter? Read on.
Shares of San Francisco, California-based Twitter Inc (NYSE:TWTR) shot up by nearly 7% on Wednesday, driven by a bullish analyst note and renewed buyout speculation. Canaccord Genuity’s Michael Graham, raised his estimates of Q4 user additions and engagement levels. Separately, President-elect Donald Trump's announcement that Japanese telecom giant SoftBank would invest $50 billion in the US, and an article on Forbes backing a SoftBank-Twitter deal, seem to have jointly sparked off a fresh round of buyout speculation. And there are a host of other smaller triggers that might have added up. If you own, or plan to own TWTR stock though, a deeper look may be warranted.
Graham's Twitter User Growth Forecast & Price Target
Canaccord Genuity’s Michael Graham gave Twitter shareholders something to cheer about, after he raised his estimates of user addition and engagement for Q4. Twitter has disappointed investors on both fronts over the last year or so, and understandably, the optimistic outlook was well received. Here's what Graham had to say about his Q4 projections for Twitter:
"the company may add 4.4 million “monthly average users” this quarter, which is slow but reduces some risk on the name."
According to Wall Street Pit, Graham's latest estimate was higher than his previous "estimates of 3.5 million and consensus at 1.6 million." As for engagement levels on Twitter, Graham predicts heightened engagement levels, driven by new and existing users:
'Based on data so far this quarter (and extrapolating out to quarter-end) our TWTR engagement survey looks like it will grow 5.3% sequentially in Q4 over Q3. Of that, we estimate that ~25% is attributable to new member growth and ~75% is due to engagement improvements in the existing base.'
Graham's user growth projections don't make for a very exciting narrative. Adding 4.4 million Monthly Active Users (MAUs) on a base of 317 million MAUs isn't going to cut it for Twitter. At best, it's better than more disappointing projections, which doesn't quite make it 'good'. The engagement aspect is encouraging though, given that Twitter really needs the users it has to spend more time on the platform if it wants to make more money off them. However, it's worth noting that Graham has a price target of $18 for TWTR stock. So, clearly, he doesn't expect these improvements to help the stock, at least not from its current perch at $19.48 a share.
Besides, you might not always want to read too much into analyst predictions. For instance, back in September 2015, Canaccord and Graham "maintained a Buy rating but lowered its price target to $40 from $45, implying upside of nearly 43% from current prices." Now we all know how that has panned out. That said, it's not necessarily his fault, because he was not the only analyst that got it wrong with Twitter. The platform went down hill rather quickly after a promising period, leaving a lot of folks disappointed.
Some Smaller 'Positive' Triggers For TWTR Stock
Adding weight to Graham's bullish thesis on engagement though, is a relatively new theory that "President-elect Donald Trump’s continued practice of tweeting surprising statements nearly every day has arguably made the service more valuable ". Not sure if that classifies as rationale though, because traditional news sources carry all of those 'statements' with equal eagerness, and I doubt if those 'statements' would be any less 'surprising' if you read them a few minutes later.
The other theory that's doing the rounds is that Twitter's new VP of product, Keith Coleman could drive revenue for Twitter. The argument is pretty good too:
"Since 2014, Twitter’s core product has been run by four different people, creating instability. We believe a stable product team focused on innovation at Twitter can help the company to attract more users and engage them better on its platform."
As sound as that logic may be, we're pretty sure Twitter thought that when they hired the previous product head, or the one before that, or the one before that one as well. Fact of the matter is, Keith Coleman is the third individual to don that hat this year. He may do a great job, but we'll hold back the optimism for later. For those interested, there seems to be some serious action on the options front with heavy call buying.
SoftBank And The Latest Round Of Twitter Buyout Speculation
Following his meeting with SoftBank CEO Masayoshi Son, President-elect took to Twiiter to announce that SoftBank would invest $50 billion in the United States. And though job creation seems to be the Trump's prime agenda, somehow, the announcement has been construed as SoftBank's M&A interest in Twitter. It's not entirely surprising, given that we've seen articles like the ones below, add to similar speculation in the past:
- With No Bidders Left, SoftBank Could Buy Twitter Inc Now
- Why SoftBank Might Acquire Twitter
- SoftBank Might be Twitter's 7th Suitor
However, this article titled "Why Japanese Telecom Giant SoftBank Could Buy Twitter" on Forbes also seems to have added weight to the speculation. The basis of the author's argument is:
- Twitter's dominance over Facebook (NSDQ:FB) in Japan
- The Kanji alphabet of Japan can represent a word using a single character - Twitter's 140 character limit could seem generous
- SoftBank's financial resources and the lack of a social media holding in its portfolio
In fact, the last paragraph of that post, which we've compressed into one bullet point, is titled "Money to burn". While we must compliment the author on the apt phrasing, we'll leave the buyout speculation to more able folks with deeper insights on the matter.
The Bottom Line
As it currently appears, live streaming seems to be Twitter's best bet. And while the platform has achieved reasonable success to start off with, it's probably too early to judge the eventual outcome. With biggies like Amazon (NSDQ:AMZN), Walt Disney's (NYSE:DIS) ESPN, Facebook and Alphabet's (NSDQ:GOOGL) YouTube all eyeing this market, at best, Twitter has an early lead. It remains to be seen what it will make of it. At this point, TWTR stock comes across as a risky bet.
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