Twitter (NYSE: TWTR) stock is trading 158% higher than its $26 IPO price - but that bull run could be over after today's earnings.
After market close, TWTR will report its first-ever earnings as a publicly traded company. Wall Street forecasts Twitter will lose $0.02 per share on $217.8 million in sales in its Q4 2014 report. Full-year estimates call for an earnings per share (EPS) loss of $0.19 on revenue of $639.39 million.
The most watched number will be Twitter's advertising revenue, which constitutes 90% of the company's total revenue.
Despite projected losses, many analysts are optimistic about Twitter and TWTR stock. They say the company is "still in investment mode," and isn't expected to earn huge profits anytime soon.
"We remain positive on Twitter's ability to become one of the web's leading utilities (alongside Google, Amazon, Facebook)," RBC Capital Markets' Mark Mahaney wrote in a note to clients. "Twitter has displayed very robust growth in key metrics, and we have confidence that this momentum can continue as the company develops its advertising platform...we remain enthusiastic about the company's long-term opportunity."
We disagree. Where many analysts are willing to write off negative numbers for Twitter before they even come out, the reality is Twitter lacks solid fundamentals.
Here's what Twitter is missing.
Twitter (TWTR): Not a Long-Term Win for InvestorsThe fundamentals of Twitter simply aren't solid.
Twitter's gross revenue is slowing, up only 6.1% in Q3 2013 from a year ago versus 10.6% in 2012 and 17.1% in 2011.
In an appearance on FOX Business' "Varney & Co." on Dec. 30, Money Morning Chief Investment Strategist Keith Fitz-Gerald said he thinks Twitter's stock price is overvalued.
"Customers are leaving in droves, you've got a complex thing they can't monetize, and the next best thing is a click away," Fitz-Gerald said.
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The main question investors buying Twitter stock should be asking is, how will Twitter make money?
It's got a 232 million a day user base - compare this to Facebook (Nasdaq: FB), which has over 1 billion. The customer base needed to support the advertising that everybody thinks is going to propel Twitter stock just may not exist.
"Twitter hasn't shown any profit potential. [It] may make a fine trading instrument, as long as the party continues, but as an investment? You can #countmeout," Fitz-Gerald wrote in October.
Instead, what drove TWTR stock so high was speculation and hype.
"Traders don't want to miss the run-up when investors recognize potential," Money Morning Capital Wave Strategist Shah Gilani commented when TWTR was trading around $50. "However, they've pushed it up in a momentum frenzy, and we all know what goes up, must come down."
A disciplined trader may see some quick profits from Twitter stock, but Fitz-Gerald recommends investors stay away - there is no long-term potential here.
Twitter stock is treading water a few hours before earnings release, up 0.21% on the day to $66.46 as of 1:30 p.m. EST.
With this bull market growing ever long in the tooth, it's just as important to know which stocks to avoid as which ones to buy - and we're not sold on Twitter.
Related Articles:
- The Street:
Twitter Earnings Preview: What to Expect - Business Day:
Twitter Faces Critical Earnings Test
The post Twitter (NYSE: TWTR) Is Overhyped and Overvalued – and Today's Earnings Will Prove It appeared first on Money Morning - Only the News You Can Profit From.
