Dear Mr. Berko: I had a good year in the market in 2014. My portfolio improved by 32 percent and ended the year with a value of $388,000. Everything I picked went up except my December 2013 purchase of Twitter at $72. In 2014, I bought Facebook, Baidu, Google, Netflix, Apple and Fleetcorp, and all of them increased in value very nicely. Please give me your opinion of Twitter stock. Do you think it can get back to the $70 level, or should I dump it?
- JS, Oklahoma City
Dear JS: Twitter (TWTR-$47) provides a platform for people to express themselves in real time on the Internet. Twitter serves the lonely, the intellectually handicapped, people who are attention-starved, people who thrive in various levels of voyeurism and users who were not breast-fed as babies. And these are the people who become emotional and teary-eyed following the personal tweets of Britney Spears, Paris Hilton, LeBron James, Miley Cyrus, Rihanna, Justin Bieber and hundreds of other celebrities.
Holy Mary, Moses, Merlin and Methuselah, this TWTR thing came public with 70 million shares in early November 2013 at $26. It had zero earnings but rose to $44 the same day. By Christmas of 2013, shareholders were as happy as pigs on ice; TWTR had risen to $75, and there were 637 million shares outstanding, worth $48 billion. The company was worth more than Kimberly-Clark, Tupperware and Wendy's combined. How in the name of all things holy and reasonable can a company with no earnings on the horizon and $1.3 billion in revenues enjoy a market value of that magnitude?
Some think it will be snowing in Miami and raining in the Gobi before TWTR returns to your break-even price. Oppenheimer, Argus Research, UBS, RBC Capital Markets and Pivotal Research have "buy" recommendations on TWTR. And the consensus of the 35 analysts who follow the stock is that it could trade between $28 and $60 in the coming 12 to 18 months. Several brokerages following TWTR recognize that in the past 12 months, the number of average monthly users has increased by 23 percent. These are the geniuses who think TWTR could run to $60 in the coming year. However, others believe that TWTR's growth is maturing and note that its current monthly active user audience is modestly lower than its several previous quarters. This group of geniuses believes that TWTR could fall to $28.
Meanwhile, TWTR's advertising revenue last year grew by 11 percent, and revenue per user is experiencing strong growth, surpassing other social networking companies, such as Facebook and LinkedIn. That's impressive. Management recently inked a deal with the National Football League to distribute proprietary content to TWTR users. And that's impressive, too. The NFL contract could be a game-changing agreement that has numerous pluses for advertising growth. TWTR also has an impressive user base (nearly 300 million), which continues to grow. And this growing user base is quite meaningful for future earnings. TWTR has certainly captured the attention and budgets of a growing number of advertisers. Because the TWTR platform is purely social, because it reinforces the user's desire to share and react to information in real time, and because it is the largest "real-time" social network in the world, advertising revenues for 2015 may nearly double again, to $2.45 billion.
JS, I'm not comfortable recommending a company that doesn't have foreseeable earnings - especially a social networking company that depends on addictive, lonely, emotionally starved users and risibly impressionable, immature people to attract advertising dollars. But TWTR's advertisers recognize that these screwballs reproduce, that they eventually morph into families and households and buy stuff. These advertisers recognize that this susceptive, callow and expanding commonage is composed of ideal buyers for the products they sell. I have no idea when TWTR will report a profit, though some suggest earnings of 45 cents by 2019. But recognizing the increasingly speculative mindset of hedge fund managers and their sorry ilk, I think TWTR could trade in the low $60s late this year or next. So purchase 100 shares at today's price, and then wait 31 days and take a tax loss on the TWTR you bought at $72. Then sell the 100 shares if TWTR moves over $60.
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Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.
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Published: Thu, Mar 26, 2015
