The 2020 Presidential Election Will Boost Twitter Stock
Twitter (NYSE:TWTR) stock has been in a funk for quite awhile now. Twitter stock plummeted 25% last July on a weak earnings report, sending the shares from $45 to the low $30s.
Source: Shutterstock
TWTR has proceeded to spend the past eight months trading between $27 and $35 per share. Just short of $33 today, TWTR stock remains clearly range-bound.
At first blush, that might seem surprising. The company announced what seemed like solid fourth-quarter results in February. Instead of breaking out, however, TWTR stock dropped again. Despite continuing solid user growth and better-than-expected revenue gains, its soft outlook for 2019 more than outweighed the positive aspects of the results. Still, there are some upbeat signs for TWTR stock going forward.
InvestorPlace - Stock Market News, Stock Advice & Trading Tips
The Outlook for Twitter Stock in 2019
There was a lot to like in the latest quarterly results , with revenue growth coming in faster than expected and the number of users continuing to rise at a healthy rate. However, analysts latched onto the report’s negative aspects. One of the latter was Twitter’s decision to switch from reporting monthly active users to divulging daily users. Wall Street usually reacts skeptically when a company changes a key reporting metric.
On top of that, Twitter suggested that its costs will rise faster than analysts had expected in 2019. The company is investing heavily in the platform, in terms of both features and content policing. I’d argue that content oversight is crucial and that Facebook’s (NASDAQ:FB) lack of spending in that area led to its string of devastating scandals. Still, Twitter’s estimate of a 20% increase in costs caused some folks to do a double take.
However, the outlook for the company’s revenue growth still appears to be relatively strong, even if its top-line guidance was slightly below expectations. Moreover, the company’s revenue growth should accelerate heading into 2020. On top of that, TWTR has a large cash pile and is solidly profitable, giving it time to keep refining its business strategy.
The Big Opportunity for Twitter Stock: The 2020 News Cycle
Investors are fretting about a potential slowdown of Twitter’s business in 2019 after Q4’s strong numbers. That’s a logical concern. But don’t lose sight of the bigger picture: Twitter stock is ideally positioned to benefit from the 2020 presidential election cycle, since the upcoming election is likely to generate record levels of social engagement.
The Democrats appear on pace to have at least a dozen serious candidates to become their presidential nominee. That should keep the nomination competitive down to the wire, and potentially lead to the first contested convention in decades. After that, expect an all-out slug-fest as President Trump fights the Democratic nominee in an effort to win reelection.
TWTR arguably left a whole lot of money and opportunity on the table in 2016. Back then, Twitter was engaging in all sorts of strategies, launching products like Fabric, MoPub, and Vine. ‘
Meanwhile, at that point, Twitter was still competing directly with Facebook as a social network. Now TWTR has recategorized itself as news. Twitter has acknowledged that it isn’t going to supplant Facebook or Instagram in their own lanes, and has instead doubled down on what it is best at : being the fastest and most engaging form of content discovery for breaking news and associated things such as live video.
This is a particularly auspicious moment for TWTR, given the huge trouble Facebook got in during the 2016 election. After its Russian manipulation scandals, Facebook has had to put a tighter leash on its news coverage.
Facebook’s other efforts to improve its news content, such as enabling media companies to publish articles directly on Facebook, have underwhelmed. That leaves Twitter stock in prime position to benefit from what should be a huge election. It’s no secret that radio and TV companies have scored big ad dollars during presidential election cycles for decades. Twitter can do the same thing online.
The Verdict on Twitter Stock
While there is plenty to like about FB stock when it comes to news, Twitter stock should be the prime beneficiary of online news consumption. TWTR started spending heavily on improving the health of its platform well before Facebook. In 2018, the amount of reported abuse on Twitter’s platform declined significantly. This is likely due to the investments Twitter has put into various aspects of its platform, such as better profile verification, improved crackdowns on bots and spammers, and more human oversight. That leaves Twitter and TWTR stock in great position as the next political cycle is just starting to heat up.
Now, not everything is going well for Twitter stock. Ignore Twitter stock’s technical, trailing price-earnings ratio of 20, as much of TWTR’s 2018 “earnings” was due to one-time benefits from the tax cut.
Twitter earned just about 50 cents per share last year after adjusting for the tax benefit, leaving Twitter stock with a high P/E ratio. Analysts, however, expect the company’s earnings to jump to around a buck per share of Twitter stock this year, which would put the forward P/E ratio of Twitter stock at around 30. That’s reasonable, though hardly cheap for a company growing at a moderate pace as Twitter is.
There’s also the matter of Twitter not yet having a full-time CEO. A lot of TWTR stock owners wonder what will happen if Jack Dorsey takes a smaller role and lets someone else become CEO.
That said, generally the outlook of TWTR stock is favorable. The company is still growing at a solid clip. It has increasingly developed its advertising business to the point where it is now a real competitor to Facebook and Google (NASDAQ:GOOGL).
And with the 2020 election on the way, Twitter’s news-driven platform has a prime opportunity to shine. If I had to guess, I would say that Twitter stock will exit its long-running trading range and move upward in coming months.
At the time of this writing, Ian Bezek owned FB stock. You can reach him on Twitter at @irbezek.
More From InvestorPlace
8 Genomic Testing Stocks That Can Ease the Sting of Theranos
7 Mid-Cap Growth Stocks That Could Be the Next Amazon or Netflix
The post The 2020 Presidential Election Will Boost Twitter Stock appeared first on InvestorPlace.
