Yuck. I just decided to do a deep-dive into Twitter's (TWTR) quarterly earnings. No fun, but I bought some weekly puts Wednesday, and have been very happy to see TWTR shares dropping like a stone in the past two sessions. Those earnings plays are dice rolls and I am always happy to close out a position with a win, as I did in the TWTR puts. But why is Twitter stock declining? For one, it's because the company offers a horrible service Twitter is down for the most logical reason: a weak sales forecast.
But beyond the management obfuscation around its user base - Twitter now tracks monetizable daily average users, a metric it has changed several times and one for which there is no third-party confirmation - the real proof in the pudding is in the operating results. Excluding a litigation charge that was due, as Reuters put it, "Twitter Inc said on Monday it would pay $809.5 million to settle a shareholder class action lawsuit accusing the social media company of deceiving investors about how often people used its platform." Twitter was barely profitable in the quarter.
From TWTR's Shareholder Letter:
"Adjusted operating income, which excludes the one-time $766 million litigation-related net charge, was $23 million, reflecting an adjusted operating margin of 2%. This compares to operating income of $56 million and an operating margin of 6% for the same period in 2020."
This is a barely profitable, tiny company that provides a horrible service -- or one that is routinely used by horrible people, anyway -- and generated a grand total of $1.284 billion in revenues in the third quarter. How on earth is it worth $43.5 billion? Granted, that's down from nearly $50 billion before the stock's recent swoon, but, again, it just makes no sense.
We are in the midst of, as Howard Marks put it, an "everything bubble" the likes of which I have never seen. Tesla's (TSLA) $13.76 billion revenues in the quarter have been turned into a $1.1 trillion valuation. But Twitter is showing declining profitability, while Tesla's improved on the operating line - although it still amazes me that no analyst has noted that TSLA's bottom-line beat was entirely due to a 20 percentage point year-on-year decline in its tax rate to an extraordinarily low 12%. But that's the subject for another day.
Twitter is a not a good company. I love pulling up the RM page and seeing a blank box that reads "Jim Collins' tweets." I was de-platformed by a China-owned media company for writing a scathing article about Twitter and its CEO Jack Dorsey, but there is no groupthink here at Real Money. I love that. And I dislike Twitter. I deactivated my account - you have to do that, you can't just ignore it or delete the app, you really have to take your data back and deactivation is the only way to accomplish that - long ago, and I will continue to deactivate the stock.
It is time to stand up and be counted. I will let President Biden (Brandon?) jet off to Glasgow and hobnob with his other globalist elite buddies (though not Xi and Putin, tellingly,) but I deal with the real world and reject apocalyptic mythologies. In the real world Twitter is still an incredibly overvalued stock even after its recent beating. Trade accordingly and have some fun. It's nice to feel good while increasing one's wealth.
