Here is why I’m considering buying Twitter shares now
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The Twitter (NYSE:TWTR) share price is down nearly 18% year to date. The stock has underperformed its competitors Meta Platforms (formally Facebook), up about 22.54%, and Snap Inc. down about 5.49%. Yet, it did reach an all-time high of $80.75 earlier this year. So, what caused it to later collapse? And is this a buying opportunity for my portfolio?
What’s behind the tumble?
Twitter was one of the company’s to have benefitted from the lockdown caused by Covid-19. Many turned to social media to stay connected with families, friends and business relations. As a result, marketers turned to popular platforms to sell more advertisements. And, in turn, it brought in more revenue for social media companies.
Since the easing of the lockdown, the statistics are not that encouraging. Although Twitter still boasted of 211 million monetizable daily active users in its Q3 2021 earnings report, Twitter shares have not done well. In November alone, the stock fell by 18%. That’s primarily because profits in its latest earnings report came in lower than expected at -$0.54 versus forecasts of $0.18.
Aside from that, towards the end of the month, Twitter’s co-founder and CEO, Jack Dorsey, announced that he was stepping down. This was amidst calls by some activist investors for his resignation. This news sent Twitter shares down a further 3%. But, could the change of leadership bring about a turnaround?
Why I am considering buying Twitter shares now
Dorsey had doubled as CEO of Twitter and Block (formerly Square), which he also co-founded. Investors had been concerned about this, as the divided attention of the CEO could affect both companies performances. That’s why I think his decision to step down could be a long-term positive.
The new CEO, Parag Agrawal, is not a new face. He had been the company’s chief technology officer since 2017. Interestingly he had spearheaded transformational projects for the company. In the words of Jack Dorsey, “My trust in Parag as Twitter’s CEO is deep. His work over the past 10 years has been transformational. I’m deeply grateful for his skill, heart and soul. It’s his time to lead”.
With the leadership concern being over, I think the company should be on a new part of growth. With that in mind, Twitter shares could explode over the long term. Especially since, excluding profits, the Q3 earnings report actually looked quite encouraging in my eyes. Revenue’s increased by 37%, while advertising income jumped 41% year-over-year.
The risks that lie ahead for Twitter’s shares
The social media space is a very competitive industry today. Although Twitter is often perceived to be one of the biggest platforms, it’s actually only the 15th most popular on an active users basis. Considering that most of its revenue comes from advertising, any fall in platform usage could significantly affect its income. After all, if advertisers don’t see engagement, they’ll quickly switch to a different platform.
Despite the high level of competition, Twitter is still a highly popular platform with millions of monthly active users that are on the rise. And while the reported losses in the most recent quarter are concerning, I still remain bullish on the long-term potential of Twitter shares. Therefore, the declining price in 2021 looks like a buying opportunity for my portfolio. But it’s not the only one. Here are my top 5 stocks to buy for 2022.
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Prosper Ambaka does not own shares in any of the companies mentioned. The Money Cog has no position in any of the companies mentioned. Views expressed on the companies, assets and strategies mentioned in this article are those of the writer and, therefore, may differ from the opinions of analysts in The Money Cog Premium services.