Online advertising is BIG business.
The companies who dominate this area will rule the next decade.
Twitter (TWTR) search volume in our TrackstarIQ data lit up like a Christmas tree after earnings.
Google (GOOGL) managed to crush earnings estimates, sending shares soaring.
Twitter’s reaction was the polar opposite.
So, where did they go wrong?
Digging into their results
Earnings beat by 2 cents and revenue by 10 million.
The company did fall shy of the 200 million monetizable daily active users by 1 million.
But come on…
Ad revenue grew 32% year-over-year while the user base was up 20%.
Heck, the company even guided higher than Wall Street expected for the coming quarters…except in user growth.
Twitter faces two significant headwinds.
First, they sit dead center of a controversy over free speech.
In a nutshell, they’re currently protected by Section 230. The statue says Twitter isn’t liable for content posted by their users for the most part.
What most people don’t realize is that the law allows the sites to pick and choose the content that they allow through.
That protection allowed these companies to flourish.
Yet, it’s been a point of contention for both Democrats and Republicans.
And Twitter made some pretty bold moves in this area.
Second, Apple (AAPL) is changing the game.
In response to privacy concerns, the new iOS 14.5 includes a serious overhaul to permissions.
Chances are, this reduces the data Twitter and other apps receive about their users – data they use to target and monetize their advertisements.
What is worth noting is the company turned a profit the last three quarters.
Still, at best you’re looking at a 50x price-to-earnings ratio but more likely something well over 100x.
Our hot take
Growth isn’t something Twitter lacks. But, it’s a tough pill to swallow revenue growth below 20% for a company that doesn’t earn much in the way of profits.
Plus, other companies like Facebook (FB) and Google (GOOGL) aren’t exactly void of controversy. Yet, they manage to turn a healthy profit and growth for shareholders.
Betting on Twitter is a bet for a turnaround or acquisition. And trying to price that isn’t easy.
If you want to play this space, there are better stocks that show more promise and return.