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On June 2, 2015, we advised that we were adding Twitter (TWTR) @ $36.67 to our portfolio. Today it closed at $36.71. We are now break-even on Twitter.
Twitter is a CORE Holding
On June 2, we published a commentary on Twitter (TWTR) which is reproduced below. In essence we remarked that Twitter had established itself as an ICON on communication worldwide. No other company could match it for instant and worldwide communications. If you want to know anything, about anything currently happening anywhere, everyone turns to Twitter.
The stock market however looks at different metrics. Twitter does not yet appear to have turned its worldwide communications dominance into worldwide revenue. The revenue model trails the penetration of the communications model. So the stock is driven down. But it is only a matter of time and effort for the company to achieve stellar revenues. People turn to Twitter every single day for many reasons at many times. A very slight uptick in revenues can turn into massive profits.
Here is the stock chart.
A bit ugly. Great hope on going public in 2013 reaching $75. Then the usual crash as the IPO investors took their profits. Then up and then down. Wide swings as promise didn’t equal results.
The stock weakened a bit after our commentary, though not much, and has now recovered, so that we are in a slightly profitable position. Gossip on the street is that Twitter is in play with bigger tech companies looking to take Twitter over. May happen. May not happen.
Another Interested Party Makes a Huge Bet on Twitter
Today Bottarelli Research published a piece on Twitter that you might find interesting. The commentary is re-produced in its entirety below. To paraphrase, an options trader just made a huge bet on Twitter. Twitter has to rise higher than $43.50 before January 2017 (ignoring any interest cost of the position) for the trader to make a profit. The trader placed over $5,000,000 on this position.
The following piece by Bottarelli Research is self explanatory.
This Stock is the Professional’s Favorite Long-Term BetTwitter (TWTR – NYSE)By Bottarelli Research
Published Monday, July 13, 2015
We often see options traders placing speculative bets in near-term contracts, but sometimes the sharpest traders like to take the long approach. After identifying a stock they like, they’ll spend days or even weeks building up a long position. That’s what we’re starting to see with Twitter TWTR – NYSE. Twitter has a large, loyal user base, but like the Facebook FB – NASDAQ of yesteryear they’ve struggled to monetize their users. Facebook eventually cracked the code, and now one trader is making a huge bet that Twitter will eventually do the same. Earlier today this trader bought 6,000 TWTR January of 2017 35 strike calls for $8.50.
Bottarelli Research Translation: Just by itself, this is an enormous order — 6,000 contracts at $8.50 apiece amounts to $5.1 million. This isn’t the first time this trade has been made, though. Since June 30 there has been more than 28,000 of these same calls purchased, usually in similarly sized contract blocks in the thousands. Counting today’s 6,000 purchase, someone has now amassed a position of roughly 34,000 calls. All told this trader has now put up over $25 million. This latest addition has a break-even price at expiration of $43.50. TWTR would have to rally 22% from current levels to reach this point. That’s a large but achievable move, considering the steep cliff TWTR just fell off and the year and a half these options have before expiring. Despite the tremendous size of this position, it’s quite possibly our customer isn’t through building. It might not be tomorrow, this week, or even this month, but if you’re looking for a strong, long-term speculative bet we know there’s one sharp options trader who thinks TWTR is the place to be. |
CymorFund’s original blog commentary follows:
Twitter – A Darling Forgotten
Remember November 2013 when the world was in a frenzy about Twitter. Twitter priced its initial public offering (IPO) at $26 a share. The next day, Twitter Inc shares rose 73 percent in a frenzied trading debut that drove the seven-year-old company’s value to $25 billion, with the stock closing at $44.90. A very nice profit for early investors.
Twitter had 230 million users and was considered an indispensable Internet utility, alongside Google Inc and Facebook.
Then came April 2015. Twitter stumbled badly.
We quote USA Today to emphasize the disappointment.
Twitter shocked Wall Street twice on Tuesday. And investors made the company pay.
Shares of the social media company plunged after it reported first-quarter revenue below Wall Street estimates and its own guidance and issued a disappointing outlook for the current quarter and for the year.
Compounding the mounting challenges facing Twitter, trading in its shares was halted after quarterly results leaked before the market closed. New Jersey research firm Selerity reported the company’s results — ironically — in a series of tweets, forcing Twitter to rush out results.
Did you catch that? The news of the so-called disappointment, was announced USING TWITTER.
The stock plummeted from $52 to $39 and has drifted lower since, closing today $36.63.
A Horrendous Stock Chart
A Rocky Road for a tech darling!
Let’s Examine the Published Financial Results
Twitter had $436 million revenue in the first-quarter, which was slightly below analysts’ estimate of $456 million. It was also slightly below Twitter’s guidance of $440 – $450 million. Management blamed the result on “lower-than-expected contribution from its newer direct response products.” In fact, this was very small miss, and rather insignoficant.
Earnings per share were $0.07, which beat the consensus expectation for $0.04. Not too shabby. So Twitter is ahead of projections in making profit.
On guidance Twitter said it expects its under-performing direct response products to continue to make revenue growth more difficult than expected. Initial guidance for revenue was $2.3 – $2.35 billion in 2015. Revised guidance is $2.2- $2.3 billion.
Does this tiny miss sound earth-shattering to you. It sounds very insignificant to me. The market always swings wildly, and as usual the reaction is wildly out of proportion to the reality.
Some other Relevant Information
Revenue rose 74% from the year-ago quarter.
Management expects full-year revenue to rise 61% over 2014.
Monthly active users continued to grow and accelerated their growth from 2% from the 3rd to 4th quarters 2014 – to 5% from the 4th quarter to the 1st quarter.
Twitter’s amount charged advertisers every time a customer engages with an ad, was up 30% from the year-ago quarter — the highest Twitter growth on record for this metric.
Now it is also true that revenue growth, although still impressive, is not as impressive as it formerly was. Enormous guidance for previous periods was greater than current expectations. Twitter can not sustain the growth of its early years over the long haul. To expect an ever increasing growth curve is an impossibility. No company anywhere could accomplish this.
All in all, in spite of slightly decelerating growth, (which growth is still massively IMPRESSIVE) there were no major red flags during the quarter. This social media story is still growing at a 18% year-over-year monthly active user growth.
Twitter’s business looks quite amazingly healthy and a mammoth growth story.
Current Analyst Targets
Courtesy Yahoo Finance
To cast another light on the subject, the following list of Analysts Targets (copied from Yahoo Finance) still gives target prices in every case substantially higher than today’s market close. These are mostly lowered targets as a result of the April fiasco.
| Date | Research Firm | Action | From | To |
|---|---|---|---|---|
| 2015-05-04 | Stifel | Upgrade | Sell | Hold |
| 2015-04-29 | Barclays | Downgrade | Overweight | Equal Weight |
| 2015-04-29 | Rosenblatt | Downgrade | Buy | Neutral |
| 2015-04-29 | Axiom Capital | Downgrade | Buy | Hold |
| 2015-04-29 | Pivotal Research Group | Upgrade | Hold | Buy |
| 2015-04-27 | Sun Trust Rbsn Humphrey | Downgrade | Buy | Neutral |
| 2015-03-25 | Pivotal Research Group | Downgrade | Buy | Hold |
| 2015-03-17 | Brean Capital | Initiated | Buy | |
| 2014-12-22 | Argus | Initiated | Buy | |
| 2014-12-19 | Oppenheimer | Initiated | Perform |
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