Twitter Inc (NYSE:TWTR) thrives on engaging and explosive news and events. Can the stock gain, though?
Panic gripped the Street yesterday, after the political environment grew uncertain, causing a big decline in the broader markets. The S&P 500 fell by just over 1.8%, while the NASDAQ tumbled by a larger ~2.6%. As you'd expect, a lot of big tech names saw huge cuts in their stock prices, with Alphabet Inc (NASDAQ:GOOGL) losing 2.3%, Apple Inc (NASDAQ:AAPL) shares falling by ~3.4%, Amazon.com Inc (NASDAQ:AMZN) shedding 2.2% and Facebook Inc (NASDAQ:FB) tumbling by 3.3%. One of the biggest losers on the day was President Trump's favored social media platform, Twitter Inc (NYSE:TWTR). Shares of the micro-blogging site were down by over 6.2% as investors dumped the stock. Ironically though, the company may be least hit by the ongoing chaos. In fact, if anything, it could stand to gain. Here's why.
Concerns Around Tax Reforms: Does It Matter To Twitter Inc?
One of the main reasons being cited for the big correction is the growing concern around the tax reforms proposed by Mr. Trump. Here's Patti Domm of CNBC described the scenario:
"The odds for tax reform have been waning as more and more controversy swirls around the Trump White House. Initially expected this year, analysts say many investors now expect it next year. But the idea that it would not be possible at all, would be a blow for a market building in expectation of tax cuts that could boost the economy and corporate bottom lines."
Among the major tax reforms that are expected to be considered are a reduction in corporate taxes, and the provision of a one time window for US Corporation to repatriate funds held abroad. Ironically, though, neither of the two reforms are likely to have a huge impact on Twitter's fortunes. For starters, Twitter has never made a profit, and it doesn't likely to do so in some time to come. Now, this is actually a bad thing, but in the given scenario, it means that the company won't really be better or worse off whether or not a reform that reduces corporate taxes comes through. Further, Twitter isn't one of those companies that have a huge amount of money stashed abroad. If you're keen to know the names of the ones that do, here's a Bloomberg post on the topic, which lists down nearly 300 companies in order of funds held abroad.
Twitter Inc Could Gain From The Chaos.
So, clearly, Twitter won't be affected by a delay in the implementation of these reforms. And as a matter of fact, the platform might just benefit from the panic that's spreading across the US, and the rest of the world. When there's commotion, turmoil or any other form of chaos, people often turn to media sources for news, discussions and debate. And we've all seen how Twitter comes alive at such times. The ongoing controversy is going to be a hot topic of debate, and conversations surrounding the topic aren't going to end in a hurry.
We all know how engagement on Twitter spiked during the US Presidential elections. And the current turn of events is likely to do the same. More and more users are likely to flock to platform to get updates, listen to prominent voices, including that of the President himself, and to participate in the dialogue. So, it's actually ironic that Twitter stock was one of the biggest losers in yesterday's trade. That said, you might not want to buy into the stock just yet.
In spite of the many positives for Twitter, though, we did think the recent rally was overdone, and the ongoing controversy could be serving just as an excuse for the stock to correct. Investors with a big risk appetite could consider betting on the stock as a high risk bet if it corrects significantly from here. For those who love fundamentally strong businesses though, Twitter might not be the stock for you.
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