The turnaround in Twitter (NYSE: TWTR) is playing out. CEO Jack Dorsay shifted Twitter’s core offering, moving from user count to meaningful user interactions and content matching. The result is not only a higher share price but a more relevant social networking site that will draw more users. Though the stock is tracking towards new highs ahead, is it sustainable? Chances are that it is.
Twitter enhanced the algorithm that matches user interests to content posted on the microblogging site. It now sends daily emails to share content that users may have missed. Users who miss even a few days first get a view of popular, relevant tweets “in case you missed it. For example, I follow @AMD so any recent, popular post from Advanced Micro Devices (NASDAQ: AMD) shows up at the top of the feed.
Valuations
Valuations are a headwind for TWTR stock. Its forward P/E is valued at around 50 times and a PEG of a heightened 4.9 times. Conversely, Facebook (NASDAQ: FB), which isn’t just the social networking site, mobile app, FB Instant Messenger but also owner of WhatsApp and Instagram, trades at a 1.1x PEG. Facebook’s forward P/E is 21 times, more than half that of Twitter.
Unless FB users leave FB’s app, Instagram, AND WhatsApp for Twitter, TWTR stock risks correcting. For now, enjoy the rally and look for another strong quarter when the company reports in May.
