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Mike Larson, Money and Markets columnist and editor of the Safe Money Report, is out today. Mandeep Rai, a senior analyst at Weiss Research, is filling in …
Is Twitter (TWTR, Weiss Ratings: D) having a Facebook (FB, Weiss Ratings: B-) moment? Twitter’s shares soared today as it reported a doubling of revenue and said user numbers grew 24 percent year-over-year, an addition of 16 million active users to the current 271 million. But what has really excited analysts and investors was the number of new mobile users. In fact, many are calling it a turning point for the company. Or in the language of today, #roaring #soaring #jackpot #forreal?
If you remember, FB had tons of users but no proven way to monetize them, making investors question its ability to actually become a real company. Guess what, almost a year ago to the day: FB announced record sales and earnings, boosted by a 51 percent increase in mobile monthly active users (MAU), a segment that contributed 41 percent of total sales. It blew away the doubters, investors bought in, advertisers signed up, analysts revised upward and the stock surged 30 percent on that day and has doubled again since. Mobile users are important in this era, as advertisers prefer smart-phone users to what they consider a dying breed of PC users.
|“There is the flipside to the euphoria that does deserve consideration.”|
Is it Twitter’s turn now?
The company reported better earnings and revenue, yes — but with this stock trading at nosebleed multiples of expected earnings, the fundamentals obviously don’t matter as much today. What analysts and stock buyers focused on today are numbers related to mobile usage, up 29 percent, which now represents a whopping 78 percent of total MAU. This is starting to sound a lot like FB’s fateful quarter a year ago, when it successfully monetized the growing mobile user base.
Twitter was certainly the beneficiary of the World Cup soccer tournament, the world’s most-watched sport. But that happens just once every four years, so ordinarily we’d dismiss the surge in users. However, many people said similar things during the Super Bowl, then the Academy Awards and, yes, you’re noticing a pattern here. This product is being used by more and more people to get their information and comments to large audiences. And the large-scale events people want to “tweet” about are never-ending.
So, time to throw caution to the wind and put everything into Twitter?
No, not exactly. There is the flipside to the euphoria that does deserve consideration. When FB posted those earnings, at the highest price of that day, it was trading at 45.8-times forward earnings. Right now, TWTR is trading at some 161-times forecast 2015 full-year earnings.
Yes, we will get some upside revisions to expectations, but that lofty valuation implies multiple quarters of exponential growth. This quarter has been great — but one quarter is not enough.
|Twitter shares soared after releasing its results showing a strong increase in mobile users, which makes it easier for the company to monetize their operations.|
To be sure, this remains a speculative stock, and today’s move is part-capitulation of the naysayers and part-speculators expecting growth to accelerate, which could indicate more drastic price swings to come. At these new valuations, it will be important to keep an eye on subsequent quarters’ results and wait for further confirmation of growth.
What is your opinion? Do you see Twitter as being on a nonstop upward trend? Or will something come around to displace it in the minds (and hands) of users? Do you use Twitter? On a smart phone or a PC? Noticed any advertising while using it? I’m eager to get your view on all of this — click here to participate.
|OUR READERS SPEAK|
Yesterday’s column on the U.S. auto industry whether the bailouts that helped it survive the financial crisis has ignited a heavy debate over the issue, with the majority saying that the government action was the wrong one and was against the principle of true capitalism. Some readers also questioned whether the Big 3 automakers are actually on a long-term path to stability.
Reader Ben echoed the comments of most of the responders, saying that bailouts only serve to perpetuate bad business models. “If a failing business model exists it should be allowed to fail and be replaced by a better one. The risk of failure made me run my business conservatively so as to protect it and the jobs it provided, including mine. Should there be no penalty for failure? If so, what fosters progress?
Reader Michael agreed. “In my opinion there are no U.S. companies that are “too big to fail.” If a company knows that no matter what they do, whether they are profitable or not, that the government will always bail them out, then where is the incentive to do their best?”
One reader, Leanier, took the other side: “If the banks are too big to fail because of what they mean to the U.S. economy, then U.S. automakers are just as much too big to let fail because of what they mean to the overall U.S. economy; it just made economic sense to preserve this very important sector of the U.S. economy.”
|OTHER DEVELOPMENTS OF THE DAY|
GDP: Advance second-quarter GDP numbers showed 4.0 percent growth — a headline number that took investors by surprise, with most expectations set around a 3 percent rise. But 1.7 percent of that growth was attributable to inventory increases; we usually don’t want to see a large gain on that front because if sales don’t increase in kind, inventory rises could pose downside risks for future GDP growth. In addition, if you average the first quarter growth of minus 2.1 percent, we actually have first-half growth of 0.9 percent. Taken in that context, and in the wake of a rising stock market, the second-half growth numbers have a lot riding on them.
Inside job: New York’s banking regulator is looking to put government monitors inside the U.S. offices of Germany’s Deutsche Bank AG (DB, Weiss Ratings: C-) and the U.K.’s Barclays PLC (BCS, Rated D+). The moves stem from the probe into possible manipulation of foreign-exchange markets, the Wall Street Journal reports, citing people familiar with the matter. The Journal says that negotiations are continuing over the details of how it would all work but that an agreement is expected soon.
Remember, you can comment on these or any other items by clicking here.
Until next time,
(Mike Larson’s regular afternoon Money and Markets column will return Friday.)