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Twitter Falls On Slow User Growth – Worsened Outlook

Twitter shares are falling sharply after the announcement of the results from the first quarter of 2021. Although it may not be a shot, the price reacts. Twitter managed to beat revenue estimates and EPS.

Twitter shares are falling sharply after the announcement of the results from the first quarter of 2021. Although it may not be a shot, the price reacts. Twitter managed to beat revenue estimates and EPS.

• 1Q Rev. $1.04B, Est. $1.03B • 1Q Adj EPS 16c, Est. 14c

However, investors have narrowed the view to the growth of new users. Seven million new users have registered on Twitter and currently has 199 million daily users.

Long term perspective

Long-term growth in sales and gross profit is solid. I assume that Twitter still has excellent growth potential , and therefore we can include it in Growth Stocks. The problem is still high costs and high monetization of the project. Twitter needs to increase its margin to make it significantly more attractive to investors in the long run. Financially, the situation is acceptable because it has a stable CF without significant fluctuations.

Twitter annual data Source: Macrotrends

What happened?

The table below shows that Twitter recorded a year-on-year growth of new users by 13% in 1Q / 2021 in the US. Yes, we will say tremendous growth, but it is the weakest growth since Q2 / 2019 . This is precisely the big problem for growth stocks. Once they miss expectations, a significant slump ensues. Internationally, this growth was 22%, which is a pretty decent figure. The potential, especially in international waters, is much more tremendous for Twitter. The outlook for further user growth is not very optimistic: "Looking ahead, the significant pandemic-related surge we saw last year creates challenging comps, and may lead to mDAU growth rates in the low double digits on a year-over-year basis in Q2, Q3, and Q4, with the low point in terms of growth likely in Q2." Another crucial point is that Twitter announced a worsened outlook for 2Q sales. Initial expectations were in the range of 980 million - $ 1.08 billion for the quarter. The current estimate has reduced the top line to $ 1.05 billion .

Twitter data and growth Source: Twitter via ZH

Market reaction

The market reacted very negatively. Twitter deleted 15 percent of its market value on Friday. From a statistical, very short-term point of view, the market is significantly oversold. The 50-day evolution of the graph attacks the 3rd standard deviation . This has only happened twice since October 2019 and was an excellent buying opportunity. Another strong support is the EMA 200. The price is very close. From a very short-term perspective, another bullish signal represents a continuous 5-day (consecutive) decline. From this point of view, the USD 51-55 zone can represent a solid opportunity from a trading perspective. However, please note that the indices are overheated at the current stage to decline further. We expect testing of the band below and subsequent slight upward retrace. From this point of view, an option spread may be a good choice. However, we would like to point out in advance that this is under no circumstances investment advice, but only our analytical view.

Twitter price chart Source: Patrik Mackovych via Tradingview

From an investor's (longer-term) perspective, we still consider the current prices to be slightly overvalued. Various valuation methods suggest that the stock is overvalued in the medium term.

WALFIR Technologies is one of the three divisions of WALFIR s.r.o., which is based in Slovakia. The primary interests of this division are analytical, quantitative, and algorithmic...

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