Twitter (TWTR) Stock Forecast and Analysis

Investing
Updated: 1st Jun 2021
Written by Sean Graytok
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Twitter is one of the world’s most popular companies. It’s stock? Not so much.

However, investors are getting excited about some changes underway at Twitter. Let’s find out if TWTR is a buy-in this Twitter Stock Forecast & Analysis.

What is Twitter?

Twitter is a social media platform that was founded by Jack Dorsey, Noah Glass, Biz Stone, and Evan Williams in 2006.

Twitter has amassed 199 million monetizable daily active users (mDAUs) that come to the platform for news, entertainment, networking, and more.

However, the company is a fraction of the size of the FAAMG companies that you probably use every day, such as Facebook (FB), Amazon (AMZN), and Google (GOOG).

Next, we’ll examine Twitter’s strategy to close this gap.

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Twitter Stock Investment Potential

#1. Capturing Value Creation

Twitter has struggled to capture the value that is created on its platform. This failure has been frustrating for existing shareholders, but it may be an opportunity for TWTR-curious investors, given its initiative to retain more platform value.

Creators and companies use Twitter to grow their respective businesses, then monetize their following off-platform. Twitter is not directly rewarded for the services that it provides.

Other tech giants like Facebook and Google collect a tax on the creation their platform facilitates. This model has turned them into two of the world’s most powerful companies.

Twitter doesn’t need to join these two on their quest for world domination, but it does need to provide more functionality to users so they can conduct commerce within the confines of Twitter.

#2. Super Follow and Subscriptions

One way Twitter can absorb more platform value is by deploying a subscription model for user-generated content, similar to the Substack and Patreon product. Twitter is calling this feature a “Super Follow.”

Building these features into Twitter’s platform allows it to host a wider variety of content, such as newsletters, podcasts, and live audio hangouts.

Twitter is flirting with paid content/creators with its new tip jar feature. We believe this is the early stages of payment rails on Twitter.

Twitter’s advantage over new platforms is that most creators have their largest online presence on Twitter.

If Clubhouse-type features are available on Twitter, then creators don’t have to build a completely new following on a new platform.

This section can be boiled down to one sentence: Twitter should be more like Facebook in terms of copying competitors.

#3. Acquisitions

These additional products aren’t easy to build — Twitter is breaking out its wallet and acquiring the companies and talent to make them possible.

Let’s take a look at Twitter’s most recent acquisitions:

  • Scroll: subscription ad-blocking service for long-form content
  • Revenue: subscription newsletter business
  • Reshuffle: a platform for developers to build workflows and connect systems with any APIs
  • Breaker: social podcasting app to help build Spaces

Twitter is taking advantage of Big Tech being under fire from antitrust allegations. Twitter hasn’t made this many purchases in a calendar year since 2015 — things are picking up.

#4. Square

Jack Dorsey is also the CEO of Square (SQ), which is one of the world’s largest fintech companies. A Twitter and Square merger or partnership would be extremely accretive to Twitter (and Square) shareholders

It’s unlikely that these two companies will merge, but a strategic partnership is in the cards.

Peer-to-peer payment functionality on a platform the size of Twitter would make it unlike any other company on the market.

Square has hinted at adding robust features to its payments network. It may soon tap into Twitter’s distribution and create the ultimate super app.

See: Tesla Stock Analysis

Twitter Stock Moat

A company’s moat is its ability to defend its market share and profitability from challengers. The following describes Twitter’s differentiator:

Twitter Eats First + The American Dream + User Base

#1. Twitter Eats First

“Content creators” go to Twitter first because that’s where they have their largest following, resulting in “content consumers” racing to Twitter for the instant supply of content.

This self-reinforcing dynamic creates a flywheel of content creation and consumption that is the backbone of Twitter.

Twitter is the default platform for the immediate reaction to … everything. There is an urgency to “reactionary” content on Twitter that incentivizes engagement and habitual behavior, reinforcing Twitter’s moat on every iteration.

#2. The American Dream

This is related to the vanity aspect of likes and retweets, but the ability for a single tweet (regardless of follower count) to go viral is the digital, fleeting version of the American Dream.

Twitter rewards merit; even the little guy or gal can “make it” in the online world.

This also speaks to the Twitter algorithms benefitting from thousands upon thousands of iterations over the years, which may speak to Twitter’s first-mover advantage and being founded in 2006.

#3. User Base

Twitter’s user base of 200 million allows it to seamlessly roll out new products to massive amounts of people.

Its initial exclusively text-based medium served as its base layer of communication. Twitter started at square one with content (text), while Instagram started at square two (images), and YouTube at three (videos).

This results in Twitter appearing to “upgrade” when it offers new products like live-audio, long-form, and other subscription-based content.

Each social platform satisfies a unique portion of the user’s content diet, but we believe Twitter is versatile in a way that the other platforms cannot replicate.

See: Stripe Stock Analysis

Twitter Stock Analysis

Let’s look at Twitter’s Q1 2021 earnings call and hear from the company’s executives:

  • Earnings: 16 cents per share vs. 14 cents expected
  • Revenue: $1.04 billion vs. $1.03 billion expected, up 28% YoY
  • Monetizable daily active users (mDAUs): 199 million vs. 200 million expected
  • User base up 20% from previous year
  • Ad revenue grew 32% YoY

The company credits its significant progress on its brand and direct response products for its uptick in revenue. It updated its ad formats, measurements, and safety controls to improve the ad experience for the client and end-users.

Twitter expects revenue between $980 and $1.08 billion in Q2, which disappointed analysts covering the stock. Shares fell as much as 11% in after-hours trading.

Twitter Stock Competition

Twitter’s current monetization strategy is advertising, so any company that harvests attention directly competes with Twitter.

Here are Twitter’s top competitors:

  • Facebook & Instagram (FB)
  • Google & YouTube (GOOG)
  • Snapchat (SNAP)
  • TikTok
  • Pinterest (PINS)
  • Reddit
  • Clubhouse
  • Patreon
  • Substack

Twitter could be a much different company a year (or five) from now if it continues its acquisition pace, especially if it goes all-in on the super app with Square and clones WeChat’s strategy.

See: Starlink Stock Analysis

Twitter Stock Bear Case

#1. Flat Since IPO

Twitter has vastly underperformed Big Tech since going public. In fact, its stock has pretty much been flat since its IPO.

It’s even lagged behind the second-tier social platforms like Pinterest and Snapchat (another?).

While past performance is not indicative of future results, Twitter can’t repeat the previous decade of innovation and expect different financial results.

#2. Monetization Strategy

Twitter has struggled to monetize its 200 million monthly active users. It’s arguably the most popular social media app on the planet, and yet its market cap is a fraction of the other social media companies.

Bears have been critical of Twitter’s advertising model for years. Twitter claims it is making promising improvements to its ad business (and means it this time).

However, to the behest of Wall Street, Twitter is not rushing these improvements. It provided moderate guidance for Q2 in an effort to persuade investors to stick with the long-term plan.

See: Apple Stock Analysis

Twitter Stock Allocation in Your Portfolio

Twitter stock might not be a good investment for everyone. The following questions might help you decide if it deserves an allocation in your portfolio:

  • Can Twitter successfully add new products to capture more of the value its platform creates?
  • Is Twitter’s moat large enough to fend off new social platforms?
  • Can Twitter improve its advertising business?
  • Will Twitter outperform the S&P 500 and Nasdaq-100 (QQQ) over the next 5 years? 10 years? 20 years?
  • Can Twitter successfully balance the line between free speech and censoring misinformation? Do they have to?
  • Will crypto applications disrupt the traditional advertising model that Twitter uses?
  • Will regulators eventually come for Twitter the same way they’re coming for YouTube and Facebook?

There are so many exciting opportunities and obstacles to consider before investing in this stock.

That’s what makes TWTR such a risky investment compared to owning the market.

See: Netflix Stocks Analysis

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Twitter Stock FAQs

Is Twitter stock a buy or sell?

Twitter stock is a buy or sell, depending on whether or not you believe it can deliver on its new product offerings.

The company is rolling out new features to further its natural progression of content offerings beyond text, images, and videos.

Why is Twitter stock dropping?

Twitter stock dropped following its most recent earnings call because Wall Street was disappointed with its quarterly growth and modest guidance. The stock fell as much as 11% after its earnings report.

Bottom Line: Twitter Stock Forecast

Investing in Twitter is either a waste of time or a great opportunity. If TWTR executes on its new initiatives, shareholders will be rewarded for assuming this risk.

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This article is for informational purposes only. It is not intended to be investment advice. 

Sean Graytok
Sean Graytok
Sean is a student of the financial and technology industry. He is interested in the people and companies who are driving the innovation that will change our future.