It's easy to heap scorn on the stock of Twitter (TWTR) . The stock went public eight years ago this month, and the range it traded on the first day, between $45 and $50, is the same range the stock travels today.
Back then, after Facebook (FB) found its stride, euphoric sentiment for social media stocks heralded Twitter as the shiny new Wall Street growth company. Eight years of zero net return ensued as expectations for speedier growth faltered.
On the one hand, Twitter's stock is a caution flag for buying the latest hot initial public offering with too much growth already baked in the share price. On the other hand, it also shows the wild sentiment swings when euphoria turns to skepticism, creating quality buying opportunities.
Twitter had $665 million in revenues in 2013 and it traded over 50x revenues on day one. Naturally, losses were steep and the prospects of positive earnings were well off in the distance.
After dreams of higher growth fell flat, the stock nosedived into the teens. Twitter was never as deft at growing users or targeting them with ads as its social media brethren. Ironically, the company's inability to effectively personalize and target ads has led to a minimal impact from Apple's (AAPL) new iOS tracking restrictions; Twitter grew revenues faster than Snapchat (SNAP) and Facebook last quarter.
Eight years after the IPO, Twitter trades at under 8x sales and has a price-to-earnings (P/E) multiple of around 50. No metric on Wall Street connotes that its shares are a bargain, even after falling more than 40% from the highs nine months ago. But Twitter's business is as strong as it ever has been, with a record $5.1 billion in revenue and 83 cents in expected earnings per share this year. New initiatives have diversified its product offerings and the company believes it can achieve revenue of $7.5 billion in 2023.
Although the stock has fallen 25% since Twitter reported third-quarter earnings, execution for the quarter and outlook were respectable. Revenue was up 37% and daily active users (DAUs) were up 13%; higher DAU growth was projected for the fourth quarter.
Management has been exploring many new avenues for growth, some with success. Twitter Spaces is a notable extension to the platform, drawing in users and time spent. Monetization opportunities are sure to follow this growing usage.
On Monday, Twitter announced that Walmart (WMT) would be the first retailer to test its new livestream platform. Since Twitter won't be taking a cut, management hopes this new e-commerce initiative can continue bringing new users and advertisers to the service.
Twitter is as much a part of the zeitgeist as it ever has been. Sporting events, including the Olympics, have continued to draw record usage and impressions.
If you've followed Twitter's stock for eight years, it's mostly been a frustrating ride. With the share's pricey metrics, it's often sentiment-driven and unloved, especially relative to other social media darlings. Yet, there have been key buying opportunities along the way.
At the IPO opening, it was foolhardy to pay in the mid $40s and more than 50x sales. Eight years later, with the sentiment dour, a case can be made to buy the stock at under 8x sales, with fundamentals and growth intact and the stock still in the mid $40s.