Twitter Still A Risky Bet After The Massive Post Earnings Correction

 

  • Twitter valuations have improved post Q1 2015 earnings.
  • However, revenue growth is projected to nearly halve in 2015.
  • With no major improvement in user addition, Twitter needs to focus on profits.

Author's Note:

Twitter valuations are now much cheaper than they were before the company's Q1 earnings release. However, for a long time now, the Twitter valuations have driven by its revenue growth. Twitter's revenue guidance for 2015 indicate that growth could nearly halve this year.

This isn't surprising though. Based on weak user growth and falling engagement levels, we'd highlighted the possibility of growth rates coming in at a little over 60%, in our pre-earnings coverage, Twitter's revenue growth could slowdown significantly.

We had also highlighted the fact that Twitter valuations carried significant risk with a downside potential of about 17%, and a target price of $40 a share. That of course, was based on the company's financials before Q1, and the fact that it has corrected by over 25% since the earnings release isn't very surprising.

Twitter's user addition continues to be rather disappointing, at 14 million monthly active users added during Q1 2015. With slowing revenue growth and the not so impressive user addition, Twitter now needs to focus on becoming profitable for it to become an attractive investment option.

You can see our Twitter stock analysis for a quick round-up of key fundamentals like cash flows, daily updated valuation multiples and more.

Is Twitter Attractive After The Massive Correction? - Video Transcript

Welcome to this videograph analyzing Twitter (NYSE:TWTR) post its Q1 earnings release. Twitter's stock tanked post earnings on the 28th of April, after the company missed its own revenue guidance, and thereby analyst estimates as well. The stock is now down by about 27% since then. Twitter valuations have subsequently gotten much cheaper than they were prior to its Q1 earnings release. Though Twitter's profit margins continued be deep in the red, the micro blogging site did show a reduction in net losses, when compared to Q1 in the year ago. However, going by Twitter's revenue projections for the year, the company's growth could nearly halve compared to twenty fourteen. Given that Twitter valuations have been primarily driven by revenue growth, this is bad news. Even after the massive correction, Twitter valuations are still steep, given the sharp slowdown projected in revenue growth, rather disappointing user growth and reduced yet huge losses. All things considered, we would sit out of this stock until the company turns a profit.

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Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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