After Twitter (NYSE:TWTR) reported quarterly earnings, the stock lost 25% of its value. Although dropping from the $40 support down to below $30 removes much of the premium, the stock could reward patient investors. Why should investors expect the correction to continue?
Weak Quarter
Twitter reported a non-GAAP Q3 EPS of $0.17 as revenue rose just 8.7% to $824 million. Bears may argue that the daily user activity is still healthy. And even though Twitter is having trouble monetizing the fast-growing DAU, its operating costs are not unmanageable as the user base grows.
In Q4, Twitter issued a downside revenue of $940 million to $1.01 billion, below the $1.06 billion average consensus estimates. Headwinds in Q3, including product issues and advertising seasonality may extend into the current quarter.
On the PR (public relations) front, banning all political advertising on Twitter globally cannot help its stock. This cuts of a source of revenue and shrinks its TAM for ad growth. Conversely, Facebook (NASDAQ:FB) is not banning political ads even though revenue from this segment is negligible.
Takeaway
Trump’s reliance on Twitter is no longer a tailwind that helped lift the site’s traffic in the last few years. But decoupling itself from politics will remove the extra noise and even attract a wider array of users with different, more valuable interests. This may improve the user’s value to advertisers.
