Ever since Twitter Inc.'s (TWTR, Financial) acquisition rumors fizzled out, the stock has been on a downward spiral. While it was reported that many big guns like Facebook Inc.Ă‚ (FB), Microsoft Corp.Ă‚ (MSFT), Alphabet Inc. (GOOG)(GOOGL) and even Salesforce (CRM) were interested in buying Twitter, the acquisition never materialized and the stock lost almost 40% of its value from its 52-week high.
While the downward spiral may be frustrating for long-term investors, I think traders can capitalize on it by betting on the company’s future over the short term. User interaction has always been key to Twitter’s potential. In its yearly filing with the SEC, Twitter has consistently emphasized the importance of user interaction.
The last few months have been very eventful in regard to the election and other world events, possibly leading to increased user interaction. With Twitter expected to report its earnings next month, I think short-term opportunists should consider buying the stock.
Expected results
As per Yahoo Finance, Twitter is expected to post EPS of 12 cents, a decrease from the 16 cents it posted last year. The company’s sales are expected to grow a meager 4.2% year over year to $740 million. Although Twitter’s valuation may be a bit on the high side given its slow revenue growth, the market is currently willing to pay a premium for the stock and all the growth concerns are priced in.
As compared to 2015, the last three months of 2016 were more eventful, which possibly resulted in increased user interaction. Higher user interaction will help Twitter beat analysts’ estimates on both earnings and revenue.
Conclusion
After having a bad 2016, Twitter has stayed relatively flat in 2017 and I believe the stock may have bottomed. The risk-reward ratio is favorable heading into the earnings report, which is why I am recommending investors buy the stock for the short term. As for the long-term future of the stock, the failed acquisition prospects have limited the upside and the company will fail to unlock its true potential with the current management.
Disclosure: No position.
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